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REPORT _ 

3 

23 




4 






COMMITTEE ON BANKING AND CURRENCY, 



TOGETHER WITH 



HEARINGS 



THEREOF, ON 



BILL EL R. 8149, 



FIFTY-THIRD CONGRESS, THIRD SESSION. 



18 9 4 



WASHINGTON: 

GOVERNMENT PRINTING OFFICE, 

1894. 



DMMITTEE ON BANKING AND CURRENCY, HOUSE OF REFRE 
SENTATIVES UNITED STATES. 



swig Sperry, Connecticut. 
:cholas N. Cox, Tennessee. 
cth W. Cobb, Missouri. 
JlVid B. Culberson, Texas. 
iLLiAM T. Ellis, Kentucky. 
lMes E. Cobb, Alabama. 
>hk De Witt Warner, New York. 
)M L. Johnson, Ohio. 



FIFTY-THIRD CONGRESS. 



William M. Springer, Illinois, Chairman. 



James C.C Black, Georgia. 
Uriel S. Hall, Missouri. 
Joseph H. Walker, Massachusetts. 
Marriott Brosius, Pennsylvania. 
Thomas J. Henderson, Illinois. 
Chales A. Eussell, Connecticut. 
Nils P. Haugen, Wisconsin. 
He* x U. Johnson. Indiana. 



Fred L. Fishback, Clerk. 



53d Congress, > HOUSE OF REPRESENTATIVES. ( Report 

3d Session. ] I No. 1508. 



\ 

NATIONAL BANKING ASSOCIATIONS. 



December 17, 1894. — Committed to the Committee of the Whole House on the state 
of the Union and ordered to be printed. 



Mr. Springer, from the Committee on Banking and Currency, sub- 
mitted the following 

KEPORT: 

[To accompany H. R. 8149.J 

The Committee on Banking and Currency, to which was referred the 
bill (H. R. 8149) to amend the laws relative to national banking 
associations, to exempt the notes of said banks from taxation upon 
certain conditions, and for other purposes, having had the same under 
consideration, report the same back with the recommendation that it 
pass. 

The laws of the United States heretofore passed authorizing national 
banking associations to issue circulating notes require that the banks 
issuing them shall deposit with the Secretary of the Treasury bonds of 
the United States as a security for the ultimate redemption of such 
notes. The amount of circulating notes can not exceed 90 per cent 
of the par value of the bonds. At the time the national banking act 
was passed a bond security of this kind was deemed necessary to 
secure the bill holders against possible loss. 

THE SECURITY REQUIRED. 

Your committee are of the opinion that a security to the full amount 
of the circulating notes issued is no longer necessary for the safety of the 
notes. The bill, the passage of which is recommended by your com- 
mittee does not require the deposit of bonds of the United States, or of 
any other interest-bearing obligation, but in lieu of such security pro- 
vides as follows: 

First. A guaranty fund consisting of Treasury notes, including the 
notes issued under the act of Congress approved July 14, 1890. equal 
to 30 per cent of the circulating notes applied for. 

Second. A safety fund, which will amount when it reaches its maxi- 
mum to 5 per cent upon the total amount of national-bank notes out- 
standing. 

Third. A first lien upon all the assets of the association issuing the 
same. 

In case the guaranty and safety funds and the assets of the failed 
bank are not sufficient to redeem the notes of such bank, a pro rata 
assessment upon all the other banking, associations, according to the 
amount of their outstanding circulation, is to be made by the Treasury 
Department, and the banks so assessed shall have a first lien upon the 



2 NATIONAL BANKING ASSOCIATIONS. 

assets of each failed bank for the amount properly chargeable to such 
bank on account of the redemption of its circulation. It is believed by 
your committee that the funds thus provided will be amply sufficient to 
secure the notes of failed banks. 

AMOUNT OF THE SECURITY. 

According- to the report of the Comptroller of the Currency for the 
year ending October 31, 1891, it appears that there were at the close of 
that year in operation in the United States 3,750 national banks, with 
an authorized capital stock of $072,671,365. The bill reported by your 
committee limits the amount of circulating notes which any bank may 
issue to 75 per cent of its capital stock. If, under this bill, the national 
banks should take out the entire circulation to which they would be 
entitled, the aggregate of circulating notes would be $501,000,000. The 
5 per cent safety fund upon this circulation would amount to $25,020,000. 
The guaranty fund required by the bill upon this circulation would 
amount to $151,000,000. 

The resources of all the banks at that time amounted to $3,173,922,055. 
It thus appears that upon a possible circulation of $501,000,000 there 
would be a present available security of $151,000,000 guaranty and 
$25,000,000 of safety funds, and an ultimate fund upon which assess- 
ments could be made to the amount of 13,173,922,055. During the 
great financial crisis of 1S93, 158 national banks suspended payment, 
having a capital stock of $30,350,000. If the national banks in the 
United States had taken out the full amount of circulation to which 
thej were entitled at that time, under the proposed bill, if it had been 
in force at that time and if the suspended banks had taken out their 
maximum circulation, the notes of such banks would have amounted 
to $22,762,000. Thirty per cent of that amount would have been 
secured by the deposit of legal-tender notes. This would "have left 
$13,931,000 of circulating notes for payment out of the safety fund, 
which, as before stated, would have amounted to $25,020,000. 

These facts demonstrate conclusively that if the proposed bill had been 
in force during the crisis of 1893, if all the banks had theretofore taken 
out circulation to the maximum amount allowed by law, and if the 
failed banks had also taken out their maximum circulation, the gua- 
ranty and safety funds would have been ample for the payment of the 
entire circulation of the outstanding notes, and would have left a sur- 
plus of over $11,000,000 still in the safety fund without the necessity, 
even in a great crisis of that kind, of making any assessment on the 
resources of the other national banks. But of the 158 banks which 
suspended payment, 86 banks, with a capital stock of $18,205,000, 
resumed business within the year, and were able to pay all their liabili- 
ties, including their circulating notes. Only 6o banks, with a capital 
stock of $10,935,000, passed into the hands of receivers. If we assume 
that the notes of the 65 banks only were to be paid out of the safety 
and guaranty funds, there would have been only $8,200,000 of notes 
outstanding if all of the banks which passed into the hands of receivers 
had taken out notes to the maximum amount allowed. 

The 30 per cent guaranty fund would have paid $2,160,000 of these 
notes, which would have left only $1,100,000 to have been paid out of 
the 5 per cent safety fund. But all of the failed banks had available 
assets which would have been applied to the payment ot their outstand- 
ing notes. Their unavailable assets, which would have realized some- 
thing in the end, and the amount which would be received on account 



NATIONAL BANKING ASSOCIATIONS. 6 

of the personal liability of tlie stockholders, would further lessen the 
amount which would have to be paid out of the safety fund. If it 
should be assumed that all of the national banks which were in exist- 
ence on the 31 st of October, 1894, were organized under the proposed 
bill, and that all of them in a great financial crisis should fail, and if 
it should be assumed that all of them had taken out circulation to the 
maximum amount allowed by the proposed bill, the conditions would 
then be as follows : 

The whole amount of circulation would be $504,000,000. The guar- 
anty and safety funds in the Treasury would amount to $176,000,000. 
This would leave $328,000,000 in circulating notes, the payment of 
which would be secured by pro rata assessments upon all the national 
banks whose resources, as before stated, amounted, on the 31st of 
October, 1894, to $3,473,922,^55. The amount of notes, it will be seen, 
would not equal 10 per cent of the resources out of which they could 
be paid. The resources of the national banks do not include the per- 
sonal liability of the stockholders, which is equal to the whole amount 
of the stock, and this amount, which at that time, as before stated, was 
$672,000,000, is an additional security for the ultimate redemption of 
the circulating notes. In view of these facts, your committee are of the 
opinion that should the proposed bill become a law, the notes which 
would be issued under it would be absolutely safe under any and all 
possible business conditions. 

JOINT LIABILITY FOR CIRCULATION. 

Some doubt has been expressed as to whether banks would take 
out circulating notes under the proposed bill, in view of the remote and 
contingent joint liability of all the banks for the circulating notes of 
each. Your committee are of the opinion that this is not an unreason- 
able requirement. National banks enjoy valuable privileges and fran- 
chises. They owe something to the public, in consideration of the 
benefits which they receive from legislation. If they are regardful of 
their own interests and the interests of the note holders there can be no 
loss to them nor to the note holders by reason of this requirement. The 
tax of 1 per centum upon the circulating notes of national banks here- 
tofore required is reduced by the proposed bill to one-half of 1 per cent 
per annum. The proceeds of this tax are intended to reimburse the 
United States for the expense of printing bills, in the first instance, and 
reprinting mutilated bills and expenses incident to the issuance and 
ministration of the currency bureau. 

There is also a tax imposed of one-half of 1 per cent upon the amount 
of circulating notes to constitute the safety fund provided for in the 
bill, but when this tax accumulates to 5 per cent upon the amount of the 
circulating notes outstanding it is to cease, and will not be reimposed 
unless the safety fund be reduced in payment of the notes of failed 
banks. The Secretary of the Treasury is authorized by the proposed 
bill to invest any money belonging to the safety fund in United States 
bonds, and such bonds and the interest accruing thereon are to be held 
as a part of the safety fund. 

REDEMPTION OF NOTES. 

The proposed bill provides that each bank shall redeem its notes at 
par on presentation at its own office, or at its own office and at such 
agencies as may be designated by it for that purpose. Any bank may 
retire any portion of its circulation by forwarding its notes to the Comp- 
troller of the Currency for cancellation, and thereupon 30 per cent of 



4 NATIONAL BANKING ASSOCIATIONS. 

the amount of the canceled notes shall be returned to the bank. This 
permits the bank, when retiring its notes, to withdraw its portion of 
the 30 per cent guarantee fund, but it can not withdraw any amount 
of the 5 per cent safety fund. Any bank which desires to take out cir- 
culation after a portion of the safety fund has been contributed by 
other banks must pay its pro rata share into said fund before receiving 
notes. 

DEFACED AND MUTILATED NOTES. 

The same provisions of law as heretofore existed in regard to defaced 
and mutilated notes are provided in the proposed bill for notes issued 
under it. 

TIME OF TAKING EFFECT. 

Section 7 provides that national banks heretofore organized and 
having bonds on deposit to secure circulation shall, on or before the 
1st day of July, 1895, withdraw such bouds, and deposit with the 
Treasurer of the Uuited States a guarantee fund, consisting of legal- 
tender notes, including the notes issued under the act of July 14, 1890, 
equal to 30 per cent of its outstanding circulation at that time, thus 
bringing the existing banks under the provisions of the new law. 

SECTIONS REPEALED. 

Sections 9 and 12 of the act approved July 12, 1882, and section 31 
of the act approved June 3, 1864, and all acts and parts of acts amend- 
atory thereof are repealed by the proposed bill. 

The sections repealed are as follows : 

Sec. 9. That any national-banking- association now organized, or hereafter organ- 
ized, desiring to withdraw its circulating notes, npon a deposit of lawful money 
with the Treasurer of the United States, as provided in section four of the act of 
June twentieth, eighteen hundred and seventy-four, entitled "An act lixing the 
amount of United States notes, providing for a redistribution of national-bank cur- 
rency, and for other purposes," or as provided in this act, is authorized to deposit 
lawful money and withdraw a proportionate amount of the bonds held as security 
for its circulating notes in the order of such deposits; and no national hank Avhich 
makes any deposit of lawful money in order to withdraw its circulating notes shall 
be entitled to receive any increase of its circulation for the period of six months 
from the time it made such deposit of lawful money for the purpose aforesaid: 
Provided, That not more than three millions of dollars of lawful money shall be 
deposited during any calendar month for this purpose: And provided further, That 
the provisions of this section shall not apply to bonds called for redemption by the 
Secretary of the Treasury, nor to the withdrawal of circulating notes in consequence 
thereof. 

The Secretary of the Treasury stated before the Committee on 
Banking and Currency that it might not be absolutely necessary to 
repeal section 9, above mentioned, for the reason that the proposed bill 
dispenses entirely with the deposit of bonds and with the payment of 
lawful money to redeem circulation, but the spirit of the section is, as 
stated by the Secretary, that the national banks shall not redeem in 
the aggregate more $3,000,000 of their circulation per month, and 
having retired any part of their circulation they shall not be permitted 
to increase it again until after six months. It is for this reason that 
the bill proposes to repeal that section. 

Section 12 is as follows : 

Sec. 12. That the Secretary of the Treasury is authorized and directed to receive 
deposits of gold coin with the Treasurer or assistant treasurers of the United States, 
in sums not less than twenty dollars, and to issue certificates therefor in denomina- 
tions of not less than twenty dollars each, corresponding with the denominations ot 
United States notes. The coin deposited for or representing the certificates of 
deposits shall he retained in the Treasury for the payment of the same on demand. 



NATIONAL BANKING ASSOCIATIONS. 5 

Said certificates shall be receivable for customs, taxes, and all public dues, and when 
so received may be reissued ; and such certificates, as also silver certificates, when 
held by any national banking association, shall be counted as part of its lawful 
reserve; and no national banking association shall be a member of any clearing 
house in which such certificates shall not be receivable in the settlement of clearing 
house balances : Provided, That the Secretary of the Treasury shall suspend the issue 
of such gold certificates whenever the amount of gold coin and gold bullion in the 
Treasury reserved for the redemption of United States notes falls below one hundred 
millions of dollars ; and the provisions of section fifty-two hundred and seven of the 
Kevised Statutes shall be applicable to the certificates herein authorized and directed 
to be issued. 

Section 5207 of the Revised Statutes, referred to in section 12, pro- 
hibits any national bank from depositing certain kinds of Government 
securities as collateral for obligations incurred by them, and that pro- 
vision is made applicable by this section to the gold and silver certifi- 
cates. 

It is the opinion of the Secretary of the Treasury that if the right to 
deposit gold and obtain gold certificates is taken away a greater amount 
of gold will be paid into the Treasury of the United States for customs 
duties than heretofore. 

Section 31, above mentioned, which is repealed by the proposed bill, 
requires each national bank in certain cities to keep a fixed reserve 
equal to 25 per cent of the amount of their deposits, and requires 
national banking associations in other cities to keep a fixed reserve of 
15 per cent on their deposits. 

That part of the section which required the computation to be made 
on the circulation of the bank as well as on the deposits has been 
repealed, so that as the law now stands these banks are required to keep 
this reserve on their deposits alone. 

The repeal of section 31 is not an essential part of the currency sys- 
tem embraced in the proposed bill. The Secretary of the Treasury, in 
his report to Congress at the beginning of the present session, recom- 
mends this repeal, and gives the following reasons therefor: 

It will be observed that the plan submitted proposes the repeal of all provisions 
of existing laws which require national banks to hold a fixed reserve against 
deposits, and, as this is a departure from the practice which has prevailed continu- 
ously for more than thirty years, it is proper to state, briefly, the reasons Avhich 
have prompted me to make this suggestion. When the national banking system 
was originally authorized it was regarded by many as a doubtful experiment at best, 
and accordingly various precautionary restrictions and limitations were imposed for 
the security of the note holders and depositors which practical experience has since 
shown to be unnecessary and sometimes harmful. Among these are the require- 
ments that bonds shall be deposited to secure 90 per cent of their par value in circu- 
lating notes and that a fixed reserve, which can not be lawfully diminished, shall 
be held on account of deposits. The consequence of this last requirement is that 
when a bank stands most in need of all its resources it can not use them without 
violating the law. 

The necessity for holding a sufficient reserve against deposits is not questioned, 
and, in fact, the business of receiving deposits and discounting paper ought never 
to be conducted without it, but it should be held for actual use when the occasion 
arises, and not made legally inaccessible at the very time when it was theoretically 
supposed to be beneficial in sustaining the credit of the bank and affording relief to 
its customers. Under the present law, when a bank finds its reserve in danger of 
reduction below the legal requirement, on account of the demands of its depositors, 
it is compelled at once to call in its loans, thereby increasing the distrust and aggra- 
vating the situation, which a judicious use of the reserve would have relieved; and 
besides, at such times, in order to protect the reserve, which is then entirely useless 
for all practical purposes, clearing-house certificates, various forms of time checks 
and bills, and other devices of doubtful legality are habitually resorted to for the 
purpose of supplying circulation to take the place of lawful money lying idle in the 
vaults of the banks. 

To provide for a reserve which can not be utilized, even at a time of the greatest 
stringency and distrust, without incurring the penalties of forfeiture, affords 
a most striking illustration of the impolicy of legislative interference with the 



b NATIONAL BANKING ASSOCIATIONS. 

natural laws of trade and finance. It is not the duty or province of the Govern- 
ment to control or regulate the private affairs of the people, except for certain well- 
defined purposes, and as the custody and use of funds belonging to depositors are 
matters which affect only the interests of the immediate parties they should be left 
to their own judgment and discretion. The duty of the Government, so far as it 
has any duty in the premises, is simply to provide that all the currency issued under 
its authority is sufficiently secured to prevent its loss or depreciation in the hands 
of the people, who are compelled to receive and pay it out in the transaction of 
business; but a bank is not dependent upon the Government for authority to receive 
deposits, and its use for that purpose by the public is as purely voluntary as the 
credit extended to any other corporation or to a private individual. 

Every prudently managed bank, if left free to conduct its deposit and discount 
business in the manner most advantageous to its own interests and the interests of 
its patrons, will undoubtedly keep on hand a reasonable reserve to meet not only 
all the ordinary demands upon it, but to provide for such emergencies as are liable 
to occur in the community where it is located; but it ought not to be prohibited by 
law from using such reserve for the only purposes it was designed to accomplish. 
The average amount of reserve held by all the national banks does not usually ex- 
ceed 17 or 18 per cent of their deposits, while the statistics show that the State banks 
doing a deposit and discount business, and which are not required by law to keep a 
fixed reserve, have generally kept on hand, in ordinary times, about 20 per cent of 
^their deposits, a fact which conduces strongly to sustain the position that a regula- 
tion upon this subject is not really necessary in order to secure the safe management 
of banking institutions, and therefore ought not to be continued. 

RETIREMENT OF LEGAL TENDERS. 

Section 9 of the proposed hill provides that the Secretary of the 
Treasury may in his discretion use from time to time any surplus 
revenue in the redemption and retirement of United States legal-tender 
notes, but the amount of such retired notes shall not in the aggregate 
exceed an amount equal to 70 per cent of the additional circulation 
taken out by all of the banks under the proposed bill. This limitation 
upon the amount of legal tenders to be retired is for the purpose of 
preventing any forced contraction of the total volume of the circulating 
medium. Under the proposed bill an amount of legal-tender notes 
equal to 30 percent of the circulation would be deposited in the Treasury 
and thus withdrawn from circulation. The net increase of circulation 
would be 70 per cent of the total circulation taken out. The amount 
which the Secretary might retire with the surplus revenues could not 
therefore contract the total volume. 

The reasons for providing for the retirement of legal-tender notes may 
be briefly stated as follows : 

First. The amount of such notes outstanding at this time is about 
$500,000,000, including the notes issued under the act of July 14, 1890. 
A gold reserve of $100,000,000 is required to be kept in the Treasury 
for the redemption of legal-tender notes on demand. In the settlement 
of foreign balances gold is required. A constant drain has been going 
on for several years in order to settle foreign demands. All persons 
desiring to ship gold abroad obtain it by applying to the Treasury of 
the United States. Those paying customs duties pay in silver certifi- 
cates or legal-tender notes. The whole demand for foreign shipment of 
gold is upon the Treasury of the United States. When the gold reserve 
is reduced below what is deemed by him a safe limit the Secretary of 
the Treasury issues bonds to replenish it, and after it is replenished the 
drain continues, and the gold reserve is again brought below the limit. 
Another issue of bonds becomes necessary, and thus results a contiu- 
ous repetition of bond issues. 

Second. There is an apprehension in the minds of investors, both in 
this country and in Europe, that at some time the Government may 
fail to pay the legal-tender notes in gold on demand. This apprehen- 



NATIONAL BANKING ASSOCIATIONS. 7 

sion gives insecurity to investments and prolongs the financial depres- 
sion. It is believed by your committee tb at if the volume of legal- 
tender notes could be gradually reduced by applying the surplus reve- 
nues for this purpose better financial conditions would prevail. 

GOVERNMENT LIABILITY. 

It should be stated in this connection that the proposed bill will 
exempt the Government of the United States' from all liability for the 
redemption of national-bank notes and place the sole responsibility 
upon the banks themselves. The banks will be amply able to take care 
of their own issues, the Government will be released from any liability, 
and bill holders will be secured under the provisions of the proposed 
bill from any possible loss. 

BANK PROFITS. 

The Secretary of the Treasury submitted to your committee an esti- 
mate prepared in the office of the Comptroller of the Currency as to 
the probable profits of circulation by national banks under the pro- 
posed bill as compared vith profits under the existing law. The state- 
ment of the Secretary of the Treasury upon this subject is as follows: 

Under the plan proposed a national bank having a capital of $100,000, and being 
therefore entitled on a deposit of 30 per cent to take ont a circulation of $75,000, would 
make profit for the first year and for all the years up until the point was reached 
where the safety fund of 5 per cent was complete of $1,972.93. The expenses that 
are charged to the bank are the annual cost of redemption of its whole circulation, 
the taxes, the express charges on the whole of its circulation, the cost of plates, and 
the agents 7 fees for redemption. Every item of expense has been deducted. The 
net profit on the $75j000 of currency for the first vear is calculated at $1,972.93, and 
after the first year at $2,722.93. 

A national bank doing business under the present law on a deposit of 2 per cent 
bonds would realize under the present system a profit of $434.28 after the same deduc- 
tions have been made, and a national bank issuing circulation of $75,000 on 4 per 
cent bonds would have a profit of $611.50. 

If a bank is issuing currency on a deposit of 5 per cent bonds its net profit on 
$75,000 circulation is $559.83 ; and if it is issuing its circulation on 6 per cent currency 
bonds (which are selling at a less premium, but paj T a higher rate of interest) the 
profit on a circulation of $75,000 is $1,648.17. 

Statement showing profit accruing to a dank issuing circulation upon the plan proposed by 
the Secretary of tlie Treasury. 

[Under plan proposed by the Secretary.] 

A bank with $100,000 capital could receive $75,000 in notes, but must deposit 
$22,500 in legal tenders. 

$75,000 loaned at 6 per cent would yield $4, 500. 00 

Deduct expenses, etc., viz: 

Loss of interest on $22,500 invested in "legal tenders" 

deposited at 6 per cent $1, 350. 00 

Annual cost of redemption of $75,000 circulation 37. 50 

Express charges on $75,000 circulation '... 2.50 

Cost of plates for $75,000 circulation 6. 25 

Agent's fees on $75,000 circulation 5. 82 

This charge is based on cost of present plan of redemption. 

i of 1 per cent tax on $75,000 for " safety fund" 187. 50 

i of 1 per cent tax on $75,000, Bureau expenses 187. 50 

1, 777. 07 

1 per cent tax on $75,000 for " safety fund" first year 750. 00 

2,527.07 

Net profit on $75,000 first year 1,972.93 

Net profit on $75,000 after first year 2, 722. 93 



8 NATIONAL BANKING ASSOCIATIONS. 

Statement showing profit accruing to a bank issuing circulation based upon a deposit of 
United States 2 per cent bonds October 31, 1894. 

Amount of bonds necessary to secure $75,000 circulation $86, 805. 55 

Interest on $86,805.55 bonds (costing, at 90 per cent, $83,333.33) at 2 per 

cent '. 1 ; 736. 11 

Interest on $75,000 circulation at 6 per cent 4, 500. 00 

Gross profits ., 6,236.11 

Deduct : 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

801. 83 

Net profits 5,434.28 

$83,333^ (cost of bonds) would yield at 6 per cent 5, 000. 00 

Net profit in favor of circulation 434. 28 

Statement shoiving profit accruing to a bank issuing circulation based upon a deposit of 
United States 4 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth at 115 $95,833.33) at 4 per cent.. . $3,333.33 
Interest on $75,000 circulation at 6 per cent 4, 500. 00 

Gross profits 7, 833. 33 

Deduct: 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption ' 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium... 670.00 

1,471.83 

Net profits 6, 361. 50 

$95,833.33 (cost of bonds) would yield at 6 per cent 5, 750. 00 

Net profit in favor of circulation 611. 50 

Statement showing profit accruing to a bank issuing circulation based upon a deposit of 
United States 5 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth at 119 $99,166.66) at 5 per cent $4, 166. 66 

Interest on $75,000 circulation at 6 per cent 4, 500. 00 

Gross profits 8, 6Q6. 06 

Deduct : 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fee 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium. . . 1, 355. 00 

2,156.83 

Net profits 6,509.83 

$99,166.66 (cost of bonds) would yield at 6 per cent 5, 950. 00 

Net profit in favor of circulation 559. 83 



NATIONAL BANKING ASSOCIATIONS V 

Statement showing profit accruing to a bank issuing circulation based upon a deposit 
of United States 6 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth at 108 $90,000) at 6 per cent $5, 000. 00 

Interest on $75,000 circulation at 6 per cent 4, 500. 00 

Gross profits 9, 500. 00 

Deduct : 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium.. 1,650.00 

2,451.83 

Net profits 7, 048. 17 

$90, 000 (cost of bonds) would yield at 6 per cent 5, 400. 00 

Net profit in favor of circulation 1, 648. 17 

STATE BANKS. 

Section 10 of the proposed bill provides for repealing the 10 per cent 
tax upon the circulating notes of State banks on conditions which are 
set forth in that section. These conditions are: 

(1) That such bank has at no time had outstanding its circulating notes in excess 
of seventy-five per centum of its paid-up and unimpaired capital. 

(2) That its stockholders are individually liable for the redemption of its circu- 
lating notes to the full extent of their ownership of stock; but this shall not be 
required in the case of persons holding stock as executors, administrators, guardians, 
or trustees, if the assets and funds in their hands are liable in like manner and to the 
same extent as the testator, intestate, ward, or person interested in such funds 
would be if living and competent to act and hold the stock in his own name. 

(3) Thai the circulating notes constitute by law a first lien upon all the assets of 
the bank. 

(4) That the bank has at all times kept on deposit with an official of the State 
authorized by law to receive and hold the same, a guaranty fund in United States 
legal-tender notes, including Treasury notes of eighteen hundred and ninety, equal 
to thirty per centum of its outstanding circulating notes; and 

(5) That it has promptly redeemed its notes at par on demand at its principal 
office, or at one or more of its branch offices, if it has branches. 

It will be seen that these conditions, if observed by the States, will 
throw around the State-bank circulation the most essential safeguards 
which are provided for the national currency. If they are not observed, 
the 10 per cent tax will be imposed, and the notes will thus be sup- 
pressed. It is true that some conditions required for national currency 
are not required for State-bank currency, but, in order that State-bank 
currency may be made equally safe, the States must provide the addi- 
tional safeguards, if any, which may be necessary. 

SUFFICIENCY AND FLEXIBILITY. 

Your committee are of the opinion that if the proposed bill should 
become a law it will provide for a safe, sufficient, and flexible currency. 
One of the chief objections to the present currency system in this country 
is want of flexibility. The amount of paper currency in circulation in this 
country, except as to national-bank notes, is fixed by statute. The 
bond security required for national bank notes makes flexibility very 
difficult, if not impossible. Such flexibility as is required by the con- 
ditions of trade and commerce is absolutely wanting. The proposed 
bill requires that the Secretary shall keep on hand blank notes, which 



10 NATIONAL BANKING ASSOCIATIONS. 

can be issued at any time to any amount which may be required by 
business conditions, within the limitof the circulation permitted under 
the bill. 

Thus provision is also made for retiring notes promptly when the 
banks may desire to do so, and as the outstanding notes will be taxed 
one-half of 1 per cent per annum, and as the nanks taking them will 
be deprived of 30 per cent thereof in legal tender notes, there will be 
an inducement to retire the circulation when it is not needed, and at 
the same time an inducement to take out circulation when business con- 
ditions require it. 

The extraordinary conditions which confront the Treasury Depart- 
ment have constrained the members of the majority of the committee, 
while not agreeing to all the provisions of the bill nor to all tbe reason- 
ing employed in this report, to concur in reporting the measure to the 
House for its consideration, each reserving to himself the right to offer 
such amendments as he may deem proper and to vote on the bill finally 
as he may determine. 

All of which is respectfully submitted. 



VIEWS OF THE MINORITY. 

The minority of the Committee on Banking and Currency, to which 
was referred bill 8149, u To amend the laws relating to national banking 
associations, to exempt the notes of State banks from taxation upon 
certain conditions, and for other purposes," having had the same under 
consideration, most heartily and enthusiastically join the Democratic 
majority of the committee in repudiating bill H. E. 8149, known as the 
Carlisle bill. 

We find the Democratic majority using the following words: 

The extraordinary conditions which confront the Treasury Department have con- 
strained the members of the majority of the committee, while not agreeing to all the 
provisions of the bill nor to all the reasoning employed in this report, to concur in 
reporting the measure to the House for its consideration, each reserving to himself 
the right to offer such amendments as he may deem proper and to vote on the bill 
finally as he may determine. 

We submit the following statement of why we were shut up to a dis- 
approval of the Carlisle bill, and this course only, much as we appre- 
ciate the pressing demand for wise and prompt action by Congress to 
relieve the strained financial condition of the whole country, and more 
especially the pressing necessities of the United States Treasury. 

The whole action of the party majority of the committee was most 
extraordinary and not approved by its voting majority. Secretary 
Carlisle read a part of the bill on the first day of his address to the com- 
mittee, saying he had not finished dictating it and would bring it in 
when he finished his address to the committee on the following day ? 
which he did. It was not again read or in any manner considered in 
committee, and an opportunity to consider or amend it was refused to 
all members, Democrats and Republicans alike. 

On Saturday at 4 p. in., immediately upon the close of the examina- 
tion of Mr. St. John, of New York, a motion was made to close the hear- 
ing and go into executive session. Upon the attempt of a member of 
the minority to make a motion to take up the bill for consideration they 
were informed by the chairman, Mr. Springer", that the Democratic 
party majority had concluded not to submit the bill to the committee 
for any motion whatever, but to report it to the House on Monday, and 
that each member could otfer what amendment he chose in the House. 
We, therefore, make no apology for neglecting to obey the House, as 
bound on our oaths to do, in reporting bills submitted to us, viz, to 
report them to the House in as perfect a draft as we can devise, in order 
to relieve the House from considering and perfectiug imperfect and even 
crude bills designed to accomplish what it is the desire and duty of the 
House to do. This plain statement is due the Republican minority, 
who really represent the voting majority of the committee, in order to 
excuse us from a share of the just criticism which should fall upon 
those who, with unseemly haste precipitate upon the House a bill which, 
in our judgment, is as faulty in its text, as well as in important provi- 
sions, to accomplish the object it purports to attain as any bill any com- 
mittee has ever reported to any Congress. 

11 



12 NATIONAL BANKING ASSOCIATIONS. 

This criticism of the bill will not only be found to be eminently just, 
but far within the truth when the Carlisle bill is compared with the 
magnitude of interests that would be injuriously affected by its enact- 
ment into law as it is reported. It is the opinion of a number of 
the most clear-headed and eminent financiers in the country that if the 
Carlisle bill was enacted into law within twenty days that it would 
precipitate a panic far more severe than that of 1893, as it would com- 
pel the forced sale upon the market of nearly two hundred millions of 
United States bonds within six months. 

This haste to report this bill is all the more inexplicable when it is 
remembered that Secretary Carlisle testified that this bill, which he had 
drafted himself for the relief of the Treasury, would not, in any event, 
relieve it materially for five years, and might not for twenty years, as 
follows : 

Mr. Walker. Have you thought of how loug a time it would take to retire the 
greenbacks? 

Secretary Carlisle. It might he that it would take twenty years, and it might he 
done in live or six years. 

Section I, line 3, repeals u all acts and parts of acts which require or 
authorize the deposit of United States bonds to secure circulating 
notes," etc., instead of "so much of all acts and parts of acts," etc. 
How many thousands may be seriously injured by such needlessly 
wholesale repeal of statutes, or whether the Supreme Court, after years 
of litigation, might by construction reeuact some parts of such statute 
which Secretary Carlisle had repealed, no one can tell. 

Section V, lines 11 to 14, provides that "each association hereafter 
organized, and each association applying for additional circulation, 
shall pay its pro rata. share into the said fund before receiving notes," 
without defining how the total fund or each share shall be ascertained. 

Lines 16 to 19 of the same paragraph provide that " when a national 
banking association becomes insolvent its guaranty fund held on deposit 
shall be transferred to the safety fund herein provided for and applied 
to the redemption of its outstanding notes." That is to say, it is merged 
in the safety fund, and again there is no provision in the bill for the 
use of the safety fund except by implication in the lines quoted. 

Lines 19 to 24 of the same paragraph provide that " in case the said 
last-mentioned fund (safety fund) should at any time be impaired by 
the redemption of the notes of failed national banks, and the immedi- 
ately available assets of said banks are not sufficient to reimburse it, 
said fund shall be at once restored by pro rata assessments upon all the 
other associations," and lines 25 to 28 read: "Associations so assessed 
shall have a first lien upon the assets of each failed bank for the amount 
properly chargeable to such bank on account of the redemption of its 
circulation," and these are all the provisions in the bill of how anyone 
is to proceed, and without defining who shall proceed to do it, or as to 
how the notes of failed banks shall be redeemed. That is, on the face 
of the Carlisle bill, when a bank fails its guaranty fund is to be paid 
into the safety fund. Then the notes of the failed bauk are to be paid 
out of the safety fund. Then all of the national banks in the country 
are to be assessed to make up the safety fund, if depleted in the proc- 
ess, and then all the national banks of the country are to put in their 
claims to the receiver of the failed bank for the moneys they have paid 
on assessment for the payment of the notes of the failed bank. 

Probably Secretary Carlisle intended to provide that the guaranty 
fund of the failed bank should be first expended in taking up the 
currency notes of the failed bank and that whatever additional sum 



NATIONAL BANKING ASSOCIATIONS. 13 

was necessary should be taken out of the safety fund to complete their 
redemption, and the safety fund should be replenished out of the assets 
of the bank, and if there was a deficiency in the assets of the failed 
bank which was made up out of the safety fund, that all of the banks 
should be assessed to make good the safety fund. 

These two oversights are accounted for, probably, by the haste with 
which the bill was drawn, for, as before stated, Mr. Carlisle informed 
the committee that he had dictated it very hastily to his stenographer, 
when it is the opinion of many that there is not a man in the country 
who can draw any bill to accomplish what the Secretary has attempted 
without spending nearer a month than a week in studying the far- 
reaching eifects of its provisions, in order to make it safe to enter upon 
legislation affecting interests of such magnitude. But these things 
are of little consequence and belittle rather than enlarge the fatal and 
inexpressibly important objections to the bill as a whole. 

Whatever legislation is had with reference to the finances of the 
country or banking in its effect upon national banks should be per- 
missive and not mandatory as to national banks while their present 
charters continue. To provide, as in section 7, " that every national 
banking association heretofore organized and having bonds on deposit 
to secure circulation shall, on or before the first day of July, eighteen 
hundred and ninety-five, withdraw such bonds and deposit with the 
Treasurer of the United States a guaranty fund consisting of United 
States legal-tender notes, including Treasury notes, "can not be justified 
upon any principle of safe legislation. As has been before stated, it 
could not fail to produce a panic, and the recklessness of such legisla- 
tion would startle not only financiers in this country but of the world. 

To pass over many most serious objections in minor details that the 
great and fundamental objections may not be obscured, the provisions 
of exemptions as to State banks, notwithstanding the many restrictions 
imposed upon them, would drive every existing national bank that 
desires to take out circulating notes into the State -bank system if the 
bill were enacted. 

The taxation of national-bank notes is one half per cent per annum 
in section 3 of the bill and one-half per cent per annum under section 
5 of the bill, making a total of 1 per cent per annum, which would be 
a taxation of five million per annum upon the banks under tbe national 
system, which there is no reason to believe from any experience of the 
past would be imposed upon them under any State system. Further- 
more, the States, even the most conservative among them, would be far 
more liberal than the United States will ever be or ought to be as 
regards bonds or any other security or redemption fund, for they require 
the deposit of no bonds whatever. We can not believe that it was the 
intention of the framers of the Carlisle bill to make the conditions 
under which national banks should issue currency any more onerous 
than those imposed or likely to be imposed upon State banks, or that 
it was the intention of Secretary Carlisle or of those who now enthu- 
siastically support the Carlisle bill or will vote for it in Congress to 
force the national banks to operate under State charters, and yet 
frankness compels us to say that we feel assured from our examination 
of it, and from the testimony taken before the Banking and Currency 
Committee, that such would be the inevitable effect of the bill if it 
became a law in its present form. 

Time has not been allowed us for a careful examination of the evi- 
dence or a more methodical and thorough analysis and formal objection 
to the various provisions of the bill, but we particularly desire to call the 



14 NATIONAL BANKING ASSOCIATIONS. 

attention of the House to the fact that of the witnesses not more than 
one or two who appeared before the committee failed to seriously object 
to the Carlisle bill, and even those witnesses upon cross-examination 
repudiated many sections of it. The witnesses were not voluntary 
witnesses, whose most conservative and reasonable fears have been 
aroused lest the bill be enacted, but witnesses invited by the chairman 
of the committee, of his own motion, without consulting the committee. 
These gentlemen were eminent as financiers, and as unprejudiced as 
any men are likely to be, and yet there are scores of men in the country 
as eminent as they who would gladly have appeared before the com- 
mittee and have spoken in tones that would have given pause to any 
such legislation as that proposed in the Carlisle bill. 

The chairman, Mr. Springer, presented a letter to the committee, 
read it, and proposed to put it in the record, approving the Carlisle 
bill, from a western banker, and when asked if he had other letters 
from bankers concerning the bill he replied, "Yes; many — fifty," and 
when asked if they all approved of the bill, his reply was, u No; only 
this one." 

The passage of the Carlisle bill may meet some political exigency, of 
which we do not know, but we do know that its passage will aggravate 
rather than relieve the perplexities of the financial situation, and 
especially that of the United States Treasury. The United States 
legal-tender notes withdrawn from circulation, did all existing national 
banks take out all the circulation permitted under the bill, would only 
be $151,000,000, still leaving $350,000,000 to vex the Treasury. This 
would not afford any substantial relief to the constant drain of gold 
from the Treasury. 

It would make still more conspicuous and thus more urgent the 
demand made for gold upon the Treasury and the notes issued under the 
bill would make confusion worse confounded in the currency by adding 
from 1 to 45 more kinds of money to those already existing. Twice within 
a short time has the House declared its unalterable opposition to allow- 
ing State banks to issue currency notes, once on June 6, 1892, by a vote 
of 84 for to 118 against it, and again under the leadership against State 
banks of the gallant and versatile gentleman from Illinois, the Hon. 
William M. Springer, on June 6, 1894, by a vote to repeal the 10 per 
cent tax of 102 for to 172 against. Therefore^ we protest against again 
consuming the time of the House in a profitless discussion of that 
objectionable section of the Carlisle bill. 

Finally, we are of the opinion that it is not safe for the House to 
enter upon the line of legislation proposed until some bill is brought 
before it that has received far more attention than the Carlisle bill, 
and we recommend that it be indefinitely postponed. 

Eespectfully submitted. 

J. H. Walker, 

M. Brositjs, 

Thos. J. Henderson, 

Charles a. Bussell, 

Nils P. Hauoen, 

Henry U. Johnson. 

Washington, December 17, 1894. 



THE NATIONAL CURRENCY AND BANKING SYSTEM. 



NOTES OF HEAEINGS BEFOEE THE COMMITTEE ON 
BANKING AND CURRENCY OF THE HOUSE OF EEPEE- 
SENTATIVES. 



Washington, D. C, Monday, December 10, 1894. 

The committee met at 10 o'clock a. m. in the room of the Committee 
on Ways and Means. 

Present: The chairman (Mr. Springer) and Messrs. Sperry, Cox, 
Cobb of Missouri, Culberson, Ellis, Cobb of Alabama, Warner, Johnson 
of Ohio, Black, Hall, Walker, Brosius, Henderson, Russell, Haugen, 
and Johnson of Indiana. 

The Chairman. The committee has met at this time for the pur- 
pose of carrying out its order embraced in three resolutions, passed at 
the last meeting of the committee, as follows: 

Resolved, That, beginning with Monday next at 10 a. m., tliis committee take up the 
recommendations of the President and the Secretary of the Treasury with reference 
to the currency, and that there be invited to appear before us the Secretary of the 
Treasury and the Comptroller of the Currency. 

Resolved, That the chairman of this committee be authorized to invite such persons 
as he may think proper to appear before us in the same matter, and to arrange for 
hearing them, with a view to completing all hearings on or before the 15th instant, 
at which date all hearings shall be closed. 

Resolved, That meetings of this committee for the purpose of these hearings may 
be called by the chairman at any time during the coming week, and that five mem- 
bers present shall be a quorum for the purposes of such hearings. 

Iii pursuance of those resolutions, I have invited the Secretary of the 
Treasury to appear before the committee at this time and to make a 
statement in relation to the general banking system which he proposed 
in his annual report. I suggest that that part of Mr. Carlisle's report 
relating to the currency be incorporated in the minutes of this hearing. 

The following is the portion of the annual report having reference to 
the subject of the currency and the banking system: 

u In my last annual report I called attention to the unsatisfactory con- 
dition of our financial legislation, and especially to the issue and redemp- 
tion of circulating notes by the Government, and the inability of the 
Secretary of the Treasury, under existing laws, to make prompt and 
adequate provision for the support" of the public credit. The experience 
of the past year has confirmed and strengthened the opinions then 
expressed, and I therefore respectfully but most earnestly urge upon 
Congress the necessity for remedial legislation during its present session. 
The well-known detects in our financial system and the serious nature 
of the evils threatened by them have done more during the last two 
years to impair the credit of the Government and the people of the United 

NAT CUR 1 



Z NATIONAL CURRENCY AND BANKING SYSTEM. 

States, at home and abroad, and to check oar industrial and commercial 
progress than all other things combined, and our first and plainest 
duty is to provide, if possible, some effective method for the prompt and 
permanent relief of the country from the consequences of the present 
unwise policy. A brief statement of the practical and unavoidable 
results of the existing legislation will demonstrate its injurious effects 
upon our financial affairs more clearly than any argument that could 
be submitted. 

"After many fluctuations, the gold reserve held for the redemption 
of United States legal-tender notes was reduced on the 17th day of 
January, 1894, to the sum of $69,757,824, and the cash balance in the 
Treasury, excluding the current liabilities, but including the gold 
reserve and subsidiary and minor coin, was $83,961,402. The current 
ordinary expenses for the support of the Government were, and for 
some time had been, very considerably in excess of the current receipts, 
and, consequently, it was impossible to procure gold for the reserve 
witiiout resorting to the issue and sale of bonds, under the authority 
conferred by * the act of January 14, 1875, commonly known as the 
resumption act. Accordingly, bonds to the amount of $50,000,000, 
bearing interest at the rate of 5 per centum, and payable alter ten years 
from date, being one of the three classes of bonds authorized by the act 
referred to, were issued and sold for the sum of $58,660,917.63,, no bid 
having been accepted which would yield the purchaser more than 3 per 
centum upon his investment. On the 6th day of March, 1894, the free 
gold in the Treasury amounted to the sum of $ 107,446,802, which was the 
highest point that has been reached since March 25, 1893. The lowest 
point reached by the reserve since the resumption of specie payments 
was on the 7th day of August, 1894, when, by reason of withdrawals in 
the redemption of notes, it was reduced to $52,189,500. After that date 
it was slowly replenished by voluntary exchanges of gold coin for 
United States notes by the banks, and by small receipts of gold in the 
payment of dues to the Government, until the 14th day of November, 
1894, when it reached the sum of $61,878,374. 

"In the meantime, however, the frequent presentation of notes for 
redemption in gold by individuals and institutions not desiring it for 
export, clearly indicated the existence of a feeling of uneasiness in the 
public mind, while foreign exchange was almost constantly at or near 
a rate which made it more profitable to export gold than to purchase 
bills, and, consequently, withdrawals for shipment were daily threatened. 
In addition to these causes of anxiety, the vast accumulation of money 
at our financial centers and the general depression in business which 
prevailed in this country, had so reduced the rates of discount that the 
inducement to keep funds abroad, where better investments could be 
made, were much greater than in ordinary times, and this, together with 
the other facts stated, made it highly imprudent to neglect any pre- 
caution which appeared necessary to insure the safety of our financial 
position. In fact, some shipments of gold were actually made, and as 
the season was approaching when in the usual course of trade and 
financial operations large exportations nearly always occur, it was 
considered absolutely necessary for the maintenance of the public credit 
and the continued execution of the monetary policy declared by Con- 
gress in the act of July 14, 1890, and repeated in the act of November 
1, 1893, to resort again to the issue of bonds. With a current revenue 
inadequate to defray the ordiuary current expenses, and practically no 
receipts of gold from customs or other sources, it was evident that the 
Treasury would be unable to meet even the usual demands for export; 



NATIONAL CURRENCY A.ND BANKING SYSTEM. 6 

which, however, would probably be very much augmented by the 
increased apprehension produced by the depleted condition of the 
reserve. Heretofore, when redemptions have been demanded to any 
considerable amount, they have commenced at a time when the reserve 
was sufficiently large to sustain the loss without seriously endangering 
the credit of the Government, or impairing the soundness of the cur- 
rency; but with a reserve of only $61,878,374 to begin with, it would 
not have been possible at any time heretofore, and in my opinion would 
not be possible hereaiter, to meet the obligations of the Government in 
the manner plainly required by the letter and spirit of the statutes 
enacted by Congress upon the subject. 

"This was the condition of affairs when, 0:1 the 14th day of November, 
proposals were issued for the sale of additional United States 5 percent 
ten-year bonds to the amount of $50,000,000, reserving in the official 
announcement the right to reject any or all bids, and requiring the pay- 
ment of 20 per cent in gold coin, or gold certificates, at the time of 
the acceptance of each bid, and 20 per cent at the end of each ten 
days thereafter, but giving purchasers the option to pay the whole 
amount at once, or at the maturity of any one of the intervening 
installments. The result of this proposition was that 486 bids were 
received, amounting to $178,836,050, nearly all of which were at rates 
which would yield to the investor 3 per cent, or less, upon the 
sums proposed to be paid. One bid for the whole sum of $50,000,000, 
upon the basis of 2.878 per cent, and being the most advantageous offer 
for the Government that was made, either singly or by aggregating 
the separate bids, was accepted, and the proceeds of the sale, 
$58,538,500, have nearly all been paid into the Treasury according to 
the terms of the sale. 

u This transaction justifies the opinion that a 2^ per cent bond, 
having a reasonable time to run, could probably have been sold at 
par, and certainly that a 3 per cent bond could have been disposed 
of at or above that rate. The fact that a bond bears so high a rate 
of interest and has so long a time to run that it must be sold at a large 
premium deters many from offering to purchase and detracts consider- 
ably from its investment and speculative value in the hands of the 
comparatively few who are willing to take the risk of future fluctuations 
in its price. The consequence is that the purchases are made almost 
exclusively by large moneyed institutions and capitalists who are familiar 
with such securities, and the people generally are precluded from 
investing their savings in the only form which is known to be perfectly 
good and always convertible into money. As the authority to issue 
and sell bonds already exists, and the present state of our financial leg- 
islation compels its occasional exercise, I repeat the recommendation 
made in my last annual report that, in the interest of the Government 
and people, power be conferred upon the Secretary of the Treasury to 
negotiate loans at a lower rate of interest and for a shorter time than., 
are now allowed. The existence of such authority, instead of increasing 
the probabilities of a frequent resort to that means of raising money, 
would have the contrary effect, because, when it is known that the Sec- 
retary of tne Treasury is clothed with ample power and facilities to- 
procure means for the maintenance of the reserve, public confidence in 
the ability of the Government to meet promptly all demands upon it 
will be much stronger than under present circumstances. Besides, the 
policy of limiting the Government to the sale of an antiquated bond, 
bearing a rate of interest wholly inconsistent with the existing state of 
the public credit and having a longer time to run than is apparently 



4 NATIONAL CURRENCY AND BANKING SYSTEM. 

necessary at the date of its issue, can not be justified upon any grouuds 
of expediency or principle. The only bonds which the Government 
now has authority to issue for any purpose are described in the refund- 
ing act of July 14, 1870, passed nearly a quarter of a century ago, and 
since then the credit and resources of the country have so greatly 
improved that the fiscal legislation of that period is wholly unsuited 
to the present situation. 

"The law should be so amended as to conform to the conditions and 
requirements of the public credit and service at the present time, and 
I earnestly hope that Congress will take early and favorable action 
upon the subject. 

"Had there been no statute or public policy requiring the Government 
to redeem in coin and reissue its own notes and to maintain the parity 
of two kinds of coin of unequal intrinsic value, there would never have 
been a time since the close of the war when the funds in the Treasury 
were not ample for all other purposes, and no issue of bonds could, there- 
fore, have been necessary. But while the statutes referred to remain 
in force, and so long as there are in circulation under the authority of 
the Government two coins unequal in vaiue, but equal in legal-tender 
qualities, every consideration of good faith and sound policy requires 
the prompt redemption of the notes on presentation in the kind of coin 
demanded by the holder and the constant observance of such adminis- 
trative methods as may be necessary to preserve the purchasing power 
of i he less valuable metal. This is essential to the continued circulation 
of our standard silver dollars and their paper representatives at par, 
and to abandon this policy, without substituting a better one in its 
place, would not only fail to cure many of the evils now existing, but 
would entail upon the people of the country additional and greater ones. 

"If, however, the mandatory legislation which keeps a large volume 
of Government notes in circulation, notwithstanding their repeated 
redemptions in coin, and also imposes upon the Government an obliga- 
tion to maintain the parity of the two metals in respect to their pur- 
chasing and debt-paying power, is perpetuated, it is evident that the 
Treasury must remain in a position which will compel it to procure and 
furnish gold to all who demand it, whether they be our own citizens or 
citizens or subjects of other countries. At the same time it will have 
no lawful or regular means of obtaining gold, except by the issue and 
sale of bonds, thus periodically increasing the interest-bearing public 
debt without either making permanent additions to its stock of this 
metal or diminishing to any extent its obligations on account of the 
notes redeemed. This situation is the necessary result of three features 
of our currency legislation, and it can not be permanently avoided, or 
even temporarily improved, without material changes in our laws 
relating to that subject. These features are: 

"(1) The circulation of United States notes as currency and their 
current redemption in coin on demand. 

"(2) The compulsory reissue of such notes after redemption. 

"(3) The excessive accumulation and coinage of silver and the issue 
of notes and certificates against it upon a ratio which greatly over- 
values that metal as compared with the standard unit of value in this 
and the other principal commercial countries. 

" These features are the most prominent characteristics of our financial 
code and they constitute a monetary system unlike that of any other 
enlightened government in the world. One of their most obvious 
effects is to defeat all attempts of the Treasury Department to procure 
and keep constantly on hand a sufficient amount of gold to inspire 



NATIONAL CURRENCY AND BANKING SYSTEM. 5 

entire confidence at home and abroad in the ability of the Government 
to preserve its own credit and maintain a sound currency for the use of 
the people. Frequent issues of bonds for the purpose of procuring gold, 
which can not be kejDt after it lias been obtained, will certainly cause 
increased distrust among our own people as well as among the people 
of other countries, and not only swell the volume of our securities 
returning from abroad for sale or redemption, but increase the with- 
drawals of foreign capital heretofore invested in our domestic enter- 
prises; and it must be admitted by all, no matter what opinions they 
may entertain upon current questions of finance, that such a condition 
of affairs can not permanently continue without still more serious con- 
sequences to the material interests of all our citizens than have hereto- 
fore been experienced. 

" The result of all our commercial and financial transactions with the 
people of other countries has been to keep us almost constantly in the 
position of debtors, and, generally, to a very large amount. The pros- 
perity of our people, therefore, depends largely upon their ability to 
sell their surplus products in foreign markets at remunerative prices in 
order to secure money or establish credit abroad with which to pay 
interest and dividends upon loans and other investments which our 
customers there have made here. Ordinarily, when there is no distrust 
of our currency or other discouraging influence, a considerable part of 
the interest and dividends earned by foreign capital in this country is 
annually or semiannually reinvested here, and this, together with the 
iact that under normal conditions the balance of trade is in our favor, 
enables our people to meet their obligations abroad without reducing 
their stock of money at home. But, when distrust arises, either as to 
our ability to pay or as to the value of the money with which we 
intend to pay the foreign capitalist not only ceases to reinvest, but pro- 
ceeds to withdraw all his money by disposing of his American securities 
in order to protect both capital and income against threatened depre- 
ciation. There are but two ways in which this withdrawal can be 
effected; one is for our people to export and sell their commodities in 
foreign markets to a sufficient amount to create a balance of credit in 
their favor equal to the amount to be withdrawn, and the other is to 
ship gold, that being the only money recognizpd in the settlement of 
international balances. The extent to which these withdrawals have 
occurred during the last two years, and the manner in which they have 
been accomplished, are partially shown by the facts that, although our 
exports of merchandise, including silver bullion, exceeded our imports 
during the fiscal year 18 3 to the amount of $30,270,795, the net export 
of gold was $86,897,275, while during the fiscal, year 1894 the net 
export of that metal was $1,172,665, notwithstanding the balance in 
our favor on account of merchandise and silver bullion sold abroad 
amounted to $261,314,603. It thus appears that our people were com- 
pelled to pay abroad in merchandise and gold during the time named 
at least $391,600,000 more than they received back, and this vast sum 
has been abstracted largely from the active business enterprises of the 
country, so affecting their growth and prosperity as to limit consump- 
tion, reduce prices, and discourage productive industry. 

'•But, independently of these considerations, our own people have a 
clear right to demand a sound and stable currency for use in the trans- 
action of their business at home, while their x>urely commercial relations 
with the people of other countries, upon whom the producers of export- 
able commodities are compelled to rely for the consumption of their 
surplus, can not be profitably maintained unless they are always in a 



6 NATIONAL CURRENCY AND BANKING SYSTEM. 

condition to pay for what they buy in as good money as they receive 
for what they sell. We can not, therefore, preserve our trade relations 
with the best customers for our surplus products unless we maintain a 
monetary system substantially in accord with theirs; and until they 
manifest a disposition to cooperate with us in effecting a change upon 
terms just and fair to all our interests, we ought to continue our adhesion 
to the gold standard of value with as large a use of silver as is consistent 
with the strict maintenance of that policj-. But in order to insure the 
success of such a policy, it is necessary not only that the Government 
should be at all times prepared to redeem its direct obligations in the 
standard unit of value and preserve equality in the exchangeable value 
of all its legal-tender coins, but that its ability and determination to 
discharge this duty shall be so manifest as to command the entire con- 
fidence of the public. 

" Since the resumption of specie payments, on the 1st day of January, 
1879, United States legal-tender notes, and Treasury notes issued under 
the act of July 14, 1890, have been redeemed in gold to the amount of 
$260,000,000 and all the notes so redeemed have been reissued and are 
now outstanding. They are a constant menace to the gold reserve, and 
no scheme of financial reform can be complete or effectual which does 
not provide at least for their gradual elimination from our currency 
system. To retain them as a part of the currency of the people and 
refuse to redeem them in standard coin on demand would be repudia- 
tion in its most odious form, because the larger part of these notes 
were forced into the circulation by the Government at a time and under 
circumstances which justified the most implicit reliance upon its good 
faith. On the other hand, to continue their redemption and reissue 
under present conditions endangers the entire volume of our currency, 
discredits the obligations of the Government and people, increases 
the public debt, and seriously embarrasses the administration of our 
financial affairs. 

" While no proposition should be entertained that will have a tendency 
to degrade the currency, or in any degree impair public confidence in 
its safety, I am convinced that the interests of the country require such 
changes in our legislation as will disconnect the Government entirely 
from the business of issuing or reissuing circulating notes and thus 
relieve its fiscal department from the periodical demands upon its 
resources which under the existing system must continue to disturb 
the financial and general business affairs of the people. In proposing 
such changes no consideration should be ignored which affects the indus- 
trial or commercial interests of any parfc of the country, for all the 
people are alike concerned in whatever promotes or retards the healthy 
development of our great national resources. 

" It is not the capitalist alone whose interests are affected by the use, 
or threatened use, of a depreciated and fluctuating currency, and the 
consequent derangement and diminution of business. A paralysis of 
business, whatever may be its cause, strikes first the wage earner, then 
the man of moderate means, and lastly the capitalist who has accumu- 
lated a surplus store of goods or money. A sound and elastic currency, 
capable of adjusting its volume easily aud rapidly to the actual demands 
of legitimate business, is what the common interests of all our people 
require, and no argument is necessary to show that such a currency is 
impossible under any system of compulsory issue, or reissue, of circu- 
lating notes. Arbitrary regulation of the volume of circulation to be 
kept outstanding is wholly inconsistent with the maintenance of a 
healthy financial condition and is the exercise of a function which does 



NATIONAL CURRENCY AND BANKING SYSTEM. 7 

not properly belong to the Government of the United States, or any other 
public authority. Its effect is to force paper currency upon the people 
when it is not needed, and deprive them of it when it is needed, thus 
establishing and maintaining an improper and unwarranted connection 
between the Government and the private business affairs of its citizens, 
and making their successful prosecution largely dependent upon the 
judgment or caprice of a superior authority having no interest in the 
transactions except, perhaps, a partisan interest not in harmony with 
sound fiscal arrangements. 

" Under our present currency system, so far as it consists of notes 
issued by the United States Government, the volume of circulation 
was intended to be, and is, in fact, unchangeable; it is unalterably 
fixed at a certain amount and, no matter how great the emergency 
may be, it can be neither enlarged nor diminished. The onfy 
part of the currency possessing in any degree the quality of elas- 
ticity is that issued by the national banking associations, and it is 
now generally conceded, I believe, that in this respect, at least, it has 
failed to meet the requirements of the situation at some of the most 
critical periods in the business affairs of the country. This fail are is 
attributable, in my opinion, to three principal causes: First, the large 
volume of United States currency of various kinds kept constantly out- 
standing, making the contraction or expansion of the comparatively 
small national -bank circulation less effective than it would otherwise 
have been; secondly, the difficulty and delay in procuring, and to some 
extent in retiring, circulation; thirdly, and mainly, the provisions of 
the law which require the deposit of United States bonds to secure 
circulation, and restrict the issue of notes to 90 per cent of the par 
value of the bonds. With $900,000,000 in United "States notes, Treas- 
ury notes of 1890, silver certificates, and gold certificates, besides about 
$625,000,000 in gold and silver coins, constantly outstanding, none of 
which can be lawfully retired by the Government without substituting 
other currency in its place, the national-bank notes, which amount to only 
$207,500,000, or about 12 per cent of the whole, can not exert a very 
effective influence upon the volume of outstanding currency at any time, 
and especially at times when large contractions or expansions are most 
needed. But the greatest difficulties are encountered, and the national- 
banking system, as now organized, is least effective, when the business 
of the country demands quick expansions of the currency to meet sud- 
den emergencies. In the first place, in order to secure additional cir- 
culation the banks are required, at the very time when money is most 
difficult to procure, to deposit United States bonds, worth in the market 
much more than their face value, upon which they will receive notes 
only to the amount of 90 per cent upon the par value of the securities ; 
and, in the second place, under the present laws, which do not author- 
ize the Treasury Department to prepare and hold a reserve of blank 
national-bank notes ready for delivery immediately upon application, 
from thirty to sixty days must ordinarily elapse before the issue can be 
made, and in the meantime the emergency has probably passed. Thus, 
the inducement to take out circulation when business necessities are 
greatest is very small, if it exists at all, and even if applications are 
made the circulation will probably not be secured until too late to afford 
relief. 

"In addition to these obstructions to the prompt increase and decrease 
of circulation, the ninth section of the act of July 12, 1882, which pro- 
vides for the extension of the corporate existence of national banks, 
expressly prohibits them from retiring their notes to a greater amount 



8 NATIONAL CURRENCY AND BANKING SYSTEM. 

than $3,000,000 ill the aggregate per month, and enacts that no bank 
which has made a deposit of lawful money in order to withdraw its cir- 
culation shall be permitted to make any increase in its circulation for a 
period of six months thereafter. These provisions are so manifestly in 
conflict with the dictates of sound policy that they require no comment. 

"In view of the foregoing considerations, and many others that might 
be urged in favor of a reorganization and reformation of our paper-cur- 
rency system, I have prepared the outlines of a plan which, in my opin- 
ion, will relieve the Government to a great extent from the burdens now 
imposed upon it, secure within a reasonable time a safe and elastic 
national and State-bank currency, and result ultimately in the perma- 
nent retirement of United States legal-tender notes of both classes. It 
is, in brief, as follows : 

"I. Repeal all laws requiring, or authorizing, the deposit of United 
States bonds as security for circulation. 

"II. Permit national banks to issue notes to an amount not exceed- 
ing 75 per cent of their paid-up and unimpaired capital, but require 
each bank, before receiving notes, to deposit a guarantee fund, con- 
sisting of United States legal-tender notes, including Treasury notes 
of 1890, to the amount of 30 percent upon the circulating notes applied, 
for. This percentage of deposits upon the circulating notes outstand- 
ing to be maintained at all times, and whenever a bank retires its circu- 
lation, in whole or in part, its guarantee fund to be returned to it in 
proportion to the amount of notes retired. 

" III. Retain the provision of the law making stockholders individu- 
ally liable, and provide that the circulating notes shall constitute a first 
lien upon all the assets of the bank. 

" IV. Impose a tax of one-half of 1 per cent per annum, payable 
semiannually, upon the average amount of notes in circulation, to defray 
the expenses of printing notes, official supervision, cancellation, etc. 

" Y. Xo national-bank note to be of less denomination than $10, and 
all notes of the same denomination to be uniform in design; but banks 
desiring to redeem their notes in gold may have uhem made payable in 
that coin. The Secretary of the Treasury to have authority to prepare 
and keep on hand, ready for issue upon application, a reserve of blank 
national-bank notes for each banking association having circulation. 

"VI. Require each national-banking association to redeem its notes 
at its own office, or at its own office and at agencies to be designated 
by it. 

"VII. To provide a safety fund for the immediate redemption of the 
circulating notes of failed banks, impose a tax of ♦ per cent per 
annum upon the average circulation of each bank until the fund amounts 
to 5 per cent of the total circulation outstanding. Require each new 
bank, and each bank taking out additional circulation, to deposit its 
proper proportion of this fund before receiving notes. When a bank 
fails, its guarantee fund held on deposit to be paid into the safety fund 
and used in the redemption of its notes, and if this fund shall be impaired 
by the redemption of the notes of failed national banks, and the imme- 
diately available cash assets of such banks are insufficient to reestab- 
lish the fund, it shall at once be made good by pro rata assessment- 
upon the other banks, according to the amounts of their outstanding 
circulation ; but there shall be a first lien upon all the assets of the failed 
bank or banks to reimburse the contributing banks. The safety fund 
may be invested in outstanding United States bonds having the longest 
time to run, the bonds and the interest upon them to be held as part of 
the fund and sold when necessary to redeem notes of failed banks. 



NATIONAL CURRENCY AND BANKING SYSTEM. V 

" VIII. Repeal the provisions of the reorganization and extension act 
of July 12, 1882, imposing limitations upon the reduction and increase 
of national- bank circulation. 

"IX. Eepeal all provisions of the law requiring banks to keep a 
reserve on account of deposits. 

"X. The Secretary of the Treasury may, in his discretion, use any 
surplus revenue of the United States in the redemption and retirement 
of United States legal tender notes, but such redemptions shall not in 
the aggregate exceed an amount equal to 70 per cent of the additional 
circulation taken out by national and State banks under the system 
herein proposed. 

"XI. Circulating notes issued by a banking corporation, duly organ-' 
ized under the laws of any State, and which transacts no other than a 
banking business, shall be exempt from taxation under the laws of the 
United States when it is shown to the satisfaction of the Secretary of 
the Treasury and the Comptroller, of the Currency — 

"(1) That such bank has at no time had outstanding its circulating 
notes in excess of 75 per cent of its paid-up and unimpaired capital. 

"(2) That its stockholders are individually liable for the redemption 
of its circulating notes to the full extent of their ownership of stock. 

"(3) That the circulating notes constitute by law a first lien upon all 
the assets of the bank. 

" (4) That the bank has at all times kept a guaranty fund in United 
States legal-tender notes, including Treasury notes of 1890, equal to 30 
per cent of its outsanding circulating notes; and 

"(5) That it has promptly redeemed its notes on demand at its prin- 
cipal office, or at one or more of its branch offices, if it has branches. 

"XII. The Secietary of the Treasury may, under proper rules and 
regulations to be established by him. permit State banks to procure and 
use in the preparation of their notes the distinctive paper used in 
printing United States securities; but no State bank shall print or 
engrave its notes in similitude of a United States note, or certificate, or 
national-bank note. 

•• Whatever may be the objections to theissueand circulation of United 
States legal-tender paper, upon either constitutional or financial grounds, 
it has become so incorporated into our currency system, and constitutes 
so large a part of our active circulation, that it could not be suddenly 
withdrawn without producing, in the present state of our laws, consider- 
able disturbance in the fiscal operations of the Government as well as 
the business of the people, and, therefore, the plan now suggested pro- 
vides for its gradual retirement, by the use of surplus revenues here- 
after received, a process which will probably require several years for 
its completion. As these notes can not be retired until other forms of 
currency to an equal amount have taken their place, there will be neither 
a forced contraction nor expansion of the circulation on account of the 
change. In the meanwhile, for the double purpose of protecting the 
Treasury as far as possible under the circumstances from repeated pres- 
entations of notes for redemption in gold and establishing a safe basis 
for the national and State bank notes, the former are to be required to 
keep always on deposit and the latter to keep constantly on hand legal- 
tender paper to an amount equal at least to 30 per cent upon their out- 
standing circulation. 

"If all the national and State banks now in existence should take out 
circulation to the full amount proposed to be authorized, the guaranty 
fund alone would absorb about $225,000,000 of legal-tender notes, and 
the national-bank safety fund, when raised to its full amount of 5 per 



10 NATIONAL CURRENCY AND BANKING SYSTEM. 

cent upon outstanding circulation, might be made to absorb about 
$3,500,000 more. 

" As the plan suggested proposes to exempt the Government of the 
United States from all liability for the redemption of national-bank 
notes and place the sole responsibility upon the banks themselves, a 
guaranty fund of not less than 30 per cent upon the outstanding cir- 
culation is regarded as a very proper and necessary feature of the sys- 
tem. A safety fund consisting of only 5 per cent upon the circulation, 
together with governmental liability for redemption in case the fund 
should at any time be insufficient, as proposed in one of the plans 
recently made public, would, of course, secure the note holder, but it 
would pledge the faith and credit of the United States in a business in 
which they have no pecuniary interest whatever, and for that reason 
alone, if there were no others, such a system would be quite objection- 
able and, in my opinion, not attainable. 

"In the case of the State banks this guaranty fund will constitute 
a permanent reserve, which, together with the individual liability of 
stockholders and the first lien upon all the assets, will make its circu- 
lating notes entirely safe. In my opinion the imposition of a tax by 
the Federal Government upon the use of circulating notes, lawfully 
issued by State banks, is an unjustifiable, if not an unconstitutional, 
interference with the authority of the several States ; but its validity has 
been judicially sustained, and as it does not appear to be practicable to 
repeal it absolutely at this time, it is proposed to avoid its prohibitory 
effect by exempting from taxation the notes of such banking institutions 
as may be organized and conducted under conditions which will amply 
protect the holders of their paper. While direct governmental super- 
vision is not, and ought not to be provided for, the requirement that 
a bank, in order to secure exemption from taxation, must satisfy the 
Secretary of the Treasury and the Comptroller of the Currency that it 
has complied with all the conditions imposed will enable those officials 
to adopt such measures as may be necessary, in each case, to ascertain 
every material fact involved in the inquiry. The contingent liability 
to a heavy rate of taxation upon the whole amount of its circulating 
notes when paid out by itself, or by other banks, will constitute, it is 
believed, a sufficient incentive to secure sound and conservative man- 
agement and to a great extent dispense with the necessity for such 
official supervision as is proposed to be retained over national banks. 

" It will be observed that the plan submitted proposes the repeal of all 
provisions of existing laws which require national banks to hold a fixed 
reserve against deposits, and, as this is a departure from the practice 
which has prevailed continuously for more than thirty years, it is proper 
to state, briefly, the reasons which have prompted me to make this sug- 
gestion. When the national banking system was originally authorized 
it was regarded by many as a doubtful experiment at best, and accord- 
ingly various precautionary restrictions and limitations were imposed 
for the security of the note holders and depositors which practical expe- 
rience has since shown to be unnecessary and sometimes harmful. 
Among these are the requirements that bonds shall be deposited to 
secure 90 per cent of their par value in circulating notes, and 
that a fixed reserve, which can not be lawfully diminished, shall be 
held on account of deposits. The consequence of this last requirement 
is that when a bank stands most in need of all its resources it can not 
use them without violating the law. The necessity for holding a 
sufficient reserve against deposits is not questioned, and, in fact, 
the business of receiving deposits and discounting paper ought never 



NATIONAL CURRENCY AND BANKING SYSTEM. 11 

to be conducted without it, but it should be held for actual use when 
the occasion arises, and not made legally inaccessible at the very time 
when it was theoretically supposed to be beneficial in sustaining the 
credit of the bank and affording relief to its customers. Under the 
present law, when a bank finds its reserve in danger of reduction below 
the legal requirement, on account of the demands of its depositors, it is 
compelled at once to call in its loans, thereby increasing the distrust 
and aggravating the situation which a judicious use of the reserve would 
have relieved ; and besides, at such times, in order to protect the reserve, 
which is then entirely useless for all practical purposes, clearing-house 
certificates, various forms of time checks aud bills, and other devices of 
doubtful legality are habitually resorted to for the purpose of supply- 
ing circulation to take the place of lawful money lying idle in the vaults 
of the banks. To provide for a reserve which can not be utilized, even 
at a time of the greatest stringency and distrust, without incurring the 
penalties of forfeiture, affords a most striking illustration of the impol- 
icy of legislative interference with the natural laws of trade and finance. 
It is not the duty or province of the Government to control or regulate 
the private affairs of the people, except for certain well-defined pur- 
poses, and as the custody and use of funds belonging to depositors are 
matters which affect only the interests of the immediate parties, they 
should be left to their own judgment and discretion. The duty of the 
Government, so far as it has any duty in the premises, is simply to pro- 
vide that all the currency issued under its authority is sufficiently 
secured to prevent its loss or depreciation in the hands of the people, 
who are compelled to receive and pay it out in the transaction of busi- 
ness; but a bank is not dependent upon the Government for authority 
to receive deposits, and its use for that purpose by the public is as 
purely voluntary as the credit extended to any other corporation or to 
a private individual. 

" Every prudently managed bank, if left free to conduct its deposit and 
discount business in the manner most advantageous to its own interests 
and the interests of its patrons, will undoubtedly keep on hand a reason- 
able reserve to meet not only all the ordinary demands upon it, but to 
provide for such emergencies as are liable to occur in the community 
where it is located; but it ought not to be prohibited by law from using 
such reserve for the only purposes it was designed to accomplish. The 
average amount of reserve held by all the national banks does not 
usually exceed 17 or 18 per cent of their deposits, while the statistics 
show that the State banks doing a deposit and discount business, and 
which are not required by law to keep a fixed reserve, have generally 
kept on hand, in ordinary times, about 20 per cent of their deposits, a 
fact which conduces strongly to sustain the position that a regulation 
upon this subject is not really necessary in order to secure the safe 
management of banking institutions and, therefore, ought not to be 
continued. 

"A safety fund, consisting of 5 per cent upon the outstanding circu- 
lation of all the banks, to insure the prompt redemption of the notes of 
failed banks is believed to be a necessary feature of any plan which 
proposes to dispense with the deposit of bonds and exempt the Govern- 
ment from liability on account of the national-bank currency. That 
the Government should be exempt, and the entire responsibility for the 
redemption of their own notes assumed by the banks, is a proposition 
which, for many reasons, I think, will receive the approval of the 
general public and ought not to be opposed by any special interest. 
The requirement that the banks shall pay their own obligations imposes 



12 NATIONAL CURRENCY AND BANKING SYSTEM. 

upon them no greater hardship than is imposed by law upon every 
other business and financial institution in the country, and the only 
argument that can be plausibly urged against it, in the case of the 
banks, is that, as the Government has undertaken through their agency 
to secure a sound circulating medium, it should pledge its credit to 
keep it good under all circumstances. The conclusive answer to this is 
that the Government has discharged its whole duty in the matter when 
it has by its legislation provided such safeguards as will, with honest 
and competent management, guarantee the safety of the notes issued 
by its authority; and this is one of the results which the proposed plan 
is intended to accomplish. The deposit of 30 per cent by each bank 
as a guarantee fund for the redemption of its own notes, and a 
deposit of 5 per cent by all the banks in a common safety fund for 
the redemption of the notes of failed banks, together with a first lien 
upon all the assets, individual liability of stockholders, official super- 
vision, and the power to assess all banks to supply deficiencies, consti- 
tute the effective parts of a system which will afford to the note holder 
ample assurance against loss and at the same time leave a liberal 
margin for profit on the circulation. 

"One beneficial effect of requiring each bank to redeem its own notes 
will be the promotion of more careful and conservative management of 
its affairs, thus avoiding to a large extent the causes which have pro- 
duced a majority of the failures heretofore. Governmental responsibility 
for the redemption of any part of the obligations of the banks has a 
strong tendency to encourage speculative adventures and careless 
methods, which would not otherwise be permitted by the directing 
officials, and is, besides, inconsistent with the policy that the banking- 
business, like all others, should be conducted upon the credit and at 
the risk of the parties most directly interested in its success. 

u In order to provide a wider field for the active circulation of our sil- 
ver coins and certificates, which now constitute about one-fifth of the 
entire volume of our currency, and to protect the Treasury as far as 
possible against the accumulation of certificates returned in payment 
of customs and other dues to the Government, it is proposed that no 
national-bank note of a less denomination than $10 shall be issued. 
The bank notes under that denomination now outstanding amount to 
$63,258,949, and there are also in circulation $64,418,831 in old United 
States legal-tender notes in denominations less than $10, $60,193,658 in 
Treasury notes of 1890, and $131,047,547 in silver certificates, making 
in the aggregate $318,618,985 in small notes, or only about $19,000,000 
less than the entire issue of silver certificates. 

"Attention was called to this subject in my last annual report, and the 
opinion was then expressed that it would be good policy to retire these 
small notes and replace them with larger ones of like character. Such 
a course would not subject the people to any inconvenience in the trans- 
acting of their ordinary business, and would keep permanently out- 
standing a much larger amount of silver coin and certificates than has 
heretofore been done, thus relieving the Treasury to a considerable 
extent from one of the difficulties which frequently embarrass its opera- 
tions. The large notes would be used generally in conducting the more 
important transactions of the people and in the payment of clues to the 
Government, so that, while no denomination would be excluded from 
circulation, public and private interests would be alike subserved. 
These changes could be made gradually as the various kinds of notes are 
received into the Treasury, and with very little, if any, additional 
expense. 



NATIONAL CURRENCY AND BANKING SYSTEM. 13 

u The fact that our circulating medium is composed of so many differ- 
ent kinds of currency would seem to require the enactment of such legis- 
lation as will provide a place in which each can be safely and conven- 
iently used, and as this can be done without discrimination against any 
of them, it ought not to be omitted from any plan which proposes per- 
manent changes in the system. The policy of various other countries 
in this respect appears to have enabled them to avoid the difficulties 
encountered here in the attempt to keep the less valuable coins and 
their representatives in circulation, without derangement of the cur- 
rency or disturbance of the public finances. 

" Great Britain, with $550,000,000 in gold and only $112,000,000 in 
silver, none of which is full legal tender, authorizes the issue of no 
note of a less denomination than £5, equal to $24.33; France, Bel- 
gium, and Italy, with $970,000,000 in gold and $518,300,000 in legal- 
tender silver, issue no notes of a less denomination than 20 francs, 
or $3.86; Holland, with $27,600,000 in gold and $53,400,000 in legal- 
tender silver, issues no paper below 25 florins, equal to $10.05; Spain, 
with $40,000,000 in gold and $120,000,000 in legal-tender silver, issues 
nothing below 25 pesetas, or $4.72; Denmark, Sweden and Norway, with 
$28,000,000 in gold and $12,100,000 in limited legal-tender silver, have 
no paper under 10 crowns, or $2.68, and Austria-Hungary, with $130,- 
000,000 in gold and $81,000,000 in legal-tender silver, is gradually retir- 
ing all notes under 10 crowns, or $4.04. ISone of these countries have 
any paper based exclusively upon silver, as we have, and consequently 
all payments made in sums less than the denominations of notes men- 
tioned must be made in actual coin, which would not be the case here 
if the recommendation now made should be complied with. Our stock 
of full legal-tender silver coins is larger in proportion to the stock of 
gold than in any of the countries named, except Holland, Belgium, and 
Spain, and yet we continue to obstruct their circulation by the issue 
of small United States notes and bank notes, which serve the purpose 
of the people in their daily transactions no better than the coins or cer- 
tificates based upon them. 

u The experience of this country under the act of February 28, 1878, 
which limited silver certificates to denominations of ten dollars and 
over, and under the act of August 4, 1886, which removed that restric- 
tion, justifies the belief that the change now proposed would result 
in a greatly increased use of silver coins and certificates, and that they 
would be much less likely to return to and remain in the Treasury 
than at present. At the time of the passage of the act last referred to, 
permitting the issue of silver certificates in denominations of one, two, 
and five dollars, standard silver dollars not represented by certificates 
had accumulated in the Treasury to the amount of $1)3,959,880, although 
the total coinage up to that elate was only $235,043,286. Within four 
months after that date, although in the meantime the coinage was pro- 
gressing at the usual rate, the amount of free silver held in the Treas- 
ury was reduced to $71,259,568, and it continued to decrease, on account 
of the demand for small certificates, until it became so reduced that 
farther issues of certificates had to be limited, practical^, to the cur- 
rent coinage of the dollars." 

STATEMENT OF SECRETARY CARLISLE. 

The Chairman. Mr. Carlisle is present, and the Chair requests that 
he will give to the committee a general explanation of the plan out- 
lined in his annual message to Congress, and state what the practical 



14 NATIONAL CURRENCY AND BANKING SYSTEM. 

working would be of a law of Congress that might be passed for the 
purpose of carrying his plan into effect. 

Secretary Carlisle. Mr. Chairman and gentlemen of the committee : 
I came here this morning in reply to a request received from the com- 
mittee for the purpose, as I supposed, of answering such questions as 
might be propounded to me by the chairman or by members of the 
committee, and of making such explanation of the various provisions 
of the proposed plan as may be deemed necessary, but without the 
slightest expectation of entering upon anything like a general argument 
or statement in regard to the proposition as that has been done to a very 
considerable extent in my annual report. 

I believe, Mr. Chairman, from my observation of what has taken 
place in the meetings of the various national bank associations, that 
there is a general opinion in the country now that the provision of the 
national banking law which requires thedeposit of United States bonds 
to secure circulation is practically a failure, or rather that it is no longer 
applicable to the situation as it exists at present. It seems to be gener- 
ally agreed that it is an obstacle to the elasticity of the currency, for the 
reason (among others) that at the very time when currency is most 
needed by the banks in order to secure additional circulation the banks 
must purchase, or at least must deposit, with the Treasurer of the 
United States, bonds that are worth from 114 to 115 cents on the dollar, 
in order to secure circulation to the extent of 90 per cent of the par 
value of the bonds. In other words, the banks are required to put on 
deposit a good deal more than they get out, and for that reason there 
is no sufficient inducement to increase the circulation. 

The second provision of the plan which I propose is intended to make 
the notes entirely secure without a deposit of bonds, or rather the 
second provision, together with other provisions, is intended to do so. 
There will be the individual liability of stockholders. The notes of a 
failed bank will be a first lien on all the assets of the bank. There 
will be official supervision, and there will be a guarantee fund amount- 
ing to 30 per cent of the circulation. There will be a safety fund, as 
required by another provision of the proposed bill, amounting to 5 per 
cent on the aggregate outstanding circulation of all the national banks, 
which fund will be available for the redemption of the notes of any failed 
bank. And my opinion is that these various provisions are suffi- 
cient to make the notes perfectly safe in the hands of the people, 
without any deposit of United States bonds. 

Under the existing law there are two other provisions, or, rather, one 
other provision and one omission, which prevent the rapid retirement 
or increase of circulation by national banks. One is the fact that the 
Secretary of the Treasury now^ has no authority to prepare and keep on 
hand a reserve of national-bank notes ready to be distributed when- 
ever applied for. The other is the ninth section of the act of July 12 r 
1882, which permits national banks to retire not more than three mil- 
lions per month of the aggregate of their circulation, and prohibits any 
national, bank which has thus withdrawn any part of its circulation 
from increasing its circulation to any extent for six months thereafter. 

The practical effect of the omission in the law to authorize the Sec- 
retary of the Treasury to keep on hand a reserve of national-bank notes 
was shown during the summer of 1883. It will be remembered by 
gentlemen of the committee that there was a period during that sum- 
mer when currency was at a premium. At that time the national 
banks applied for additional circulation, amounting to somewhere about 
$40,000,000, and the Treasury Department proceeded, as rapidly as 
possible, to get out the notes, but before they could be got out and 



•NATIONAL CURRENCY AND BANKING SYSTEM. 15 

delivered to the banks the emergency had passed, and the consequence 
was that several millions of the notes came back to the Treasury Depart- 
ment for cancellation in the original packages in which they had been 
issued, the official seal never having been broken. 

Now, it is evident that if the Secretary of the Treasury had pos- 
sessed authority at that time to keep on hand a sufficient supply of notes, 
they could have been issued the next day after application was made 
for them; but the operation of the ninth section of the act of 1882 is very 
plain, and everybody can see that there may come a time when banks 
may want to make a reduction in circulation to the amount of many 
millions, or when the business of the country may require an immedi- 
ate increase of circulation; but under the operation of that section it 
can not be done. 

This plan proposes to repeal that section, in connection with other 
features, and to confer on the Secretary of the Treasury authority to 
keep on hand a reserve of national-bank notes. That reserve, however, 
should at no time, I think, exceed the difference between the amount of 
the particular bank's outstanding circulation and the 75 per cent on its 
capital which it would be authorized under this bill to take out. That 
is to say, if a bank with $100,000 capital had out $50,000 of circulation 
the reserve of its notes in the Treasury should not exceed $25,000. This 
would give to every bank all the circulation that it is entitled to have. 

I would now be glad to answer any questions which members of the 
committee may desire to ask me. 

The Chairman. Will the Secretary please explain in what manner 
this mode of securing circulation differs from what is known as the 
Baltimore plan °? 

Secretary Carlisle. The Baltimore plan proposes to authorize the 
banks to issue circulation up to 50 per cent of their capital stock, with- 
out any actual deposit whatever in the Treasury, but with the pro- 
vision that each bank shall be subject to a certain rate of taxation 
until a fund has been raised equal to 5 per cent of the total outstand- 
ing circulation of all the national banks. 

This fund is to be a common fund, and is to be used for the purpose 
of redeeming the notes of failed national banks. In case the fund 
shall be insufficient at any time to redeem the notes of failed national 
banks (that is, shall be reduced below 5 per cent of the total outstand- 
ing circulation), then the Government of the United States is, out of its 
own funds, to redeem the notes and look to t he assets of the failed bank 
for reimbursement. 

The plan which I have proposed requires, in the first place, the 
deposit of a sum equal to 30 per cent of the amount of circulating 
notes applied for by the bank, this money to be held all the time and 
to constitute a separate fund belonging to the bank which makes the 
deposit. In addition to that, there is to be a safety fund raised by tax- 
ation on all the banks in the same way as is proposed in the Baltimore 
plan, out of which the notes of failed banks shall be redeemed; and 
if that fund shall prove insufficient (or if it be reduced below 5 per 
cent of the total amount of national bank circulation) and if the imme- 
diate available assets of the failed bank are not sufficient to redeem its 
notes, the Treasury Department is to assess all the other national banks 
pro rata, according to the amount of their circulation to reimburse 
this fund. The banks that pay this assessment are to have a first 
lien on all the assets of the failed national bank, and the Government 
is not to be in any way responsible. 

When a bank fails this 30 per cent deposit which belongs to it will 
be paid at once into the safety fund and used for retiring the notes of 



16 NATIONAL CURRENCY AND BANKING SYSTEM. 

the failed bank. If at any time a bank desires to retire its circulation 
while still continuing in business, it may do so by redeeming" its 
notes and sending them to the Treasury Department and having them 
destroyed; and the proper proportion of the 30 per cent fund is to be 
returned to it. 

Mr. Hall. The section of the act of July 12, 1882, to which you have 
just referred, was it put in the national banking law for the purpose of 
preventing an expansion or a contraction of the currency'? 

Secretary Carlisle. That was supposed to be the purpose. 

Mr. Hall. You know that there is, in some parts of the United 
States, a sentiment that it is dangerous to vest in bank corporations 
the great power of expanding and contracting the volume of currency, 
and that feeling had probably something to do with that ninth section. 
I wish to hear you as to whether you think there is any danger of put- 
ting that power of expanding and contracting the currency in the 
control of corporations and outside of Government control. 

Secretary Carlisle. I think it may be assumed, in the first place, 
that neither national banks nor any other banks would expand or con- 
tract the currency unless it was to their interest to do so; and certainly 
it will not be the interest of the banks to contract the currency at a 
time when the business of the country requires its expansion, nor to 
expand the currency at a time when the business of the country is not 
sufficient to employ all the circulation that is out. 

In other words, I think that it will work automatically, and that 
when a bank finds that the business of the country is in such a con- 
dition as to demand more circulation, that in* reased circulation will be 
issued. If, on the other hand, a bank finds that the business of the 
country is 'so depressed that the outstanding circulation is super- 
abundant, its interest will be to contract the currency. You will 
remember that the banks are to keep at least 30 per cent of the amount 
of their circulation with the Treasury Department, and that they are 
to pay a tax on their circulation. 

In other words, I think that the commercial interests of the country 
will, all the time, determine, one way or the other, when a contraction 
or an expansion is needed, and that the banks will resx>ond to that 
necessity. They will do so if they look to their own interests. On the 
other hand, if you are to have an absolute fixed amount ot currency 
outstanding among the people I do not think that the business interests 
of the country are at all subserved by it. 

Mr. Johnson, of Indiana. That is one of the objections to the issue 
of currency by the Government. 

Secretary Carlisle. Yes. The objection is that the Government 
now has outstanding a certain amount of money (silver, gold, and 
paper) not one dollar of which can be retired by any public authority 
without having another dollar put in its place. 

Mr. Hall. You understand the general idea of the people on that 
question and you think that that idea was embodied in the ninth sec- 
tion of the act of 1882? 

Secretary Carlisle. There might be danger, when a panic strikes 
the country, that banks would improperly withdraw their circulation 
for the purpose of protecting themselves against their outstanding 
liabilities; and I think that provision was inseited in the act of 
1882 'on account of particular transactions that occurred in 1881 at a 
time when the refunding bill was pending before Congress, and when 
a certain section was put into the bill which required national banks 
thereafter taking out circulation to deposit 3 per cent United States 
bonds (not disturbing any bonds then on deposit). 1 think there was 



NATIONAL CURRENCY AND BANKING SYSTEM. 17 

an impression through the country that the effect of the fifth section of 
that bill would be to compel national banks to take out of the hands of 
the United States Treasurer the bonds which they already had there, and 
to substitute for them 3 per cent bonds; and the consequence was that 
within thirteen days the banks withdrew $18,000,000. It was feared 
that there would be a serious crisis; but the President, Mr. Hayes, 
vetoed the bill, and the House failed to pass it over the veto. That 
was, I think, the cause of the insertion of that provision. It was an 
extraordinary case. It was the case of a clear misapprehension on the 
part of the banks. 

Mr. Johnson, of Indiana. The fund provided for ultimate redemp- 
tion in the Baltimore plan is, I understand, less than the fund provided 
in your plan. 

Secretary Carlisle. It is the same precisely. 

Mr. Johnson, of Indiana. The same in amount'? 

Secretary Carlisle. Precisely. The fund for the redemption of the 
notes of failed national banks is the same in the Baltimore plan and 
in my plan — the safety fund. That fund will be equal to 5 per cent 
on the total outstanding circulation of all the national banks. But, 
in addition to that, the plan submitted by me requires each bank to put 
up 30 per cent of its circulation. 

Mr. Johnson, of Indiana. The amount of money in your plan is 
larger than that provided for in the Baltimore plan? 

Secretary Carlisle. It is larger in the case of each particular bank, 
which is to be required to deposit 30 per cent of its circulation. 

Mr. Johnson, of Indiana. The advocates of the Baltimore plan claim, 
do they not, that the fund which that plan provides for is amply suffi- 
cient to pay the notes of all banks likely to be insolvent. What have 
you to say as to that? 

Secretary Carlisle. While the advocates of the Baltimore plan 
claim that the 5 per cent will be sufficient, yet they do not content 
themselves with that, because they provide for governmental liability. 

Mr. Johnson, of Indiana. The difference between the two plans is 
that the Baltimore plan requires the Government to become liable for 
the notes of insolvent banks, whereas your plan does not require the 
Government to assume the liability? 

Secretary Carlisle. The plan which I have suggested proposes a 
safety fund of precisely the same amount as is proposed in the Baltimore 
plan, and then, instead of having governmental liability, as the Balti- 
more plan proposes, this plan proposes that the banks which contribute 
to the safety fund shall still remain liable for keeping the fund good. 

Mr. Johnson, of Indiana. I understand that; but what I want to 
get at is this : The Baltimore plan proposes the ultimate liability of the 
Government for the redemption of the notes of insolvent banks? 

Secretary Carlisle. Yes. 

Mr. Johnson, of Indiana. And your plan puts that liability on the 
banks? 

Secretary Carlisle. Entirely. 

Mr. Johnson, of Indiana. And the Government is not to be liable 
at all? 

Secretary Carlisle. Not at all. The Government is not to be liable 
at all. This plan proposes that the banks, which are to be called on in 
the first place to create this fund, shall at all times keep it good for 
the purpose for which it is intended, and that if the fund be impaired 
by the redemption of the notes of failed banks, all the banks shall then 
be assessed pro rata, according to their circulation, to make the fund 

NAT CUR 2 



18 NATIONAL CURRENCY AND BANKING SYSTEM. 

good again, and that each bank thus assessed shall have a lien on the 
assets of the failed bank for reimbursement. In other words, this plan 
makes the national banks liable for the redemption of the notes of 
failed banks, and protects the Government entirely from all responsi- 
bility except the printing of the notes and the holding of the guarantee 
and safety funds. 

Mr. Johnson, of Indiana. The advocates of the Baltimore plan cite 
the statistics in the office of the Comptroller of the Currency to show 
that, if there had been no Government bonds deposited to secure the 
circulation of national-bank notes, the fund created by the tax on cir- 
culation would have been sufficient to pay all the notes of failed banks 
since the establishment of the national banking law, and would leave 
the Government $50,000,000 ahead? 

Secretary Carlisle. It does not occur to me that we are justified in 
concluding that because the losses by the failure of national banks did 
not exceed a certain amount when they had bonds on deposit, they 
would not have exceeded that amount if there had been no deposits of 
bonds. The fact that there was no greater loss may have been on 
account of the fact that there had been a deposit of bonds to secure 
circulation. 

The present law, as amended in 1874 or 1875, requires every national 
bank to keep on deposit with the Treasurer of the United States a sum 
equal to 5 per cent on its outstanding circulation for the purpose of 
redeeming its notes; that is, for the current redemption of its notes. 
The outstanding circulation of national-bank notes now is about 
$207,500,000. Therefore that fund would be a little over $10,000,000. 
You will observe that this fund is only for the current redemption of 
notes — for the redemption of such notes as come in each day from the 
national banks — which have been previously deposited at the subtreas- 
uries at New York, New Orleans, Philadelphia, or elsewhere. I had an 
investigation of that fund made some time ago, and found it scarcely 
ever had more than six or seven millions in it. 

The Chairman. Please to explain whether there will be any time 
between the failure of a bank and its final winding up, through the 
operation of the courts, when its notes would be at a discount under 
your plan. 

Secretary Carlisle. I think not. Experience under the present law 
shows that bank notes are never all presented at once. When a bank 
fails its notes are all scattered throughout the country, and they come 
in gradually. It will be known that, the notes are perfectly safe and 
that the receiver who has been appointed by the Comptroller of the 
Currency has in his hands the assets to pay the notes and there is no 
haste in having them redeemed. The notes will be good, because 
there is, in the first place, the safety fund of 5 per cent on the total 
bank circulation, the 30 per cent deposit on the circulation of each 
individual bank, individual liability of all the stockholders, a first lien 
on all the assets, and, if necessary, assessments upon all the banks, to 
make the fund good, and, unless all the banks fail, the notes will be 
paid. On the subject of current redemption I would like to say this : 
The plan now proposed disconnects the Government entirely from the 
business of redeeming national-bank notes, and places the responsibil- 
ity for the current redemption of these notes, as well as for their final 
redemption, on the banks themselves. Under the operation of the 
present law the Treasury Department is put to very great inconven- 
ience, and the expense is greater than it ought to be. 

If you look at the daily reports in the newspapers of the Govern- 



NATIONAL CUKRENCY AND BANKING SYSTEM. 19 

ment receipts, you will find from $300,000 to $500,000 a day for the 
redemption of national-bank notes. These are not mutilated and 
defaced notes, or notes otherwise uufit for circulation, but they are 
notes which are, perhaps, just as well fitted for circulation (a large part 
of them) as they were when they went out of the Treasury Depart- 
ment. The process is this: The New York banks, mainly (but also 
the banks in other places, to a certain extent), find themselves over- 
loaded with national-bank notes issued by banks all over the United 
States, from Maine to California. The national-bank note is not 
receivable for customs dues in New York or anywhere else. It is 
receivable tor other dues to the Government. Large payments of 
customs dues are made every day at New York, and the national- 
bank notes are not as useful to the banks of New York as other kinds 
of money are. The consequence is that the banks send them down 
to the subtreasury and have them redeemed in lawful money of the 
United States. 

The statute says that they shall be redeemed in United States notes; 
but in actual practice they are redeemed in all kinds of lawful money. 
Sometimes they are redeemed by giving a check, and sometimes they 
are redeemed by transferring funds to Chicago or some other place. At 
any rate, the law provides that the Treasurer of the United States 
must redeem them. He does so,'and he sends them to the Treasury 
Department. There they are counted and assorted, the notes of each 
separate bank being put by themselves, and then the banks whose 
notes have been redeemed are notified, through the Treasurer of the 
United States, that their notes, to a certain amount, have been, 
redeemed, and that they must send forward the lawful money to reim- 
burse the Government for what it has paid in redemption of them. It 
sometimes happens that we have many millions suspended in the air, 
if I may use that expression, because we have paid out lawful money 
to redeem these national-bank notes. 

Mr. Walker. As that lawful money belongs to the banks, its pay- 
ment does not deplete the Treasury? 

Secretary Carlisle. No; it does not deplete the Treasury, but it 
keeps the fund down. 

Mr. Walker. That is the intention of the law, is it not? 

Secretary Carlisle. Yes; but the banks do not make the fund good 
sometimes for two or three weeks, and we are subject all the time to 
this trouble and annoyance of having to redeem the national-bank 
notes, probably to the amount of $300,000 or $400,000 every day in 
lawful money, and then have to correspond with all the banks to send 
it back. 

Mr. Walker. How do you propose to correct that? 

Secretary Carlisle. I propose that the banks shall redeem their own 
notes. 

Mr. Walker. Over their counter? 

Secretary Carlisle. Over their counter; or that they shall have 
agencies, if they desire to establish them, at other points. For instance, 
if a bank in Omaha desires an agent to redeem its notes in Philadelphia 
or New York it may provide such an agent, and then, if the uotes are 
redeemed the bank will send them, if they are unfit for circulation, 
to the Treasury Department, and will have new notes issued for them. 
But the Government will be relieved from the obligation to provide 
for the current redemption of national-bank notes. You see, therefore, 
that as the law stands now any bank — or anybody else for that matter — 
wanting lawful money in exchange for national-bank notes may pre- 
sent the national-bank notes at a subtreasury of the United States and 



20 NATIONAL CURRENCY AND BANKING SYSTEM. 

get lawful money for them, thereby taking away from us the very class 
of bills on which gold can be demanded at the Treasury. If this plan 
were adopted exactly the reverse of that would be the case. The United 
States Treasury would receive national-bank notes as it does now, and 
if the United States Treasury wanted lawful money it would send the 
notes to the bunks and get lawful money for them. 

Mr. Walker. What trouble or risk does this redemption make to 
the Treasury of the United States which is not compensated for? In 
other words, is not all the trouble and risk on the banks except as to 
clerk hire? 

Secretary Carlisle. I do not think there is any loss sustained by 
the United States in that way. If we were to put a strict construction 
on the statute (which never has been done) I think that the national- 
bank note is redeemable only here in Washington, because the law says 
that presentation of the notes shall be to the Treasurer of the United 
States. But in practice, the different assistant treasurers all over the 
United States have been receiving those notes. 

Mr. Walker. That is for the accommodation of the people? 

Secretary Carlisle. Yes. 

Mr. Walker. And it cheapened the expense of money to the people. 
You do not object to that? You do not advocate changing that? 

Secretary Carlisle. Not if the present system remains in force, but 
I would change the system, and 1 would relieve the Government entirely 
from the redemption of national-bank notes. 

Mr. Johnson, of Indiana. Aside from the principle of divorcing the 
Government from the redemption of national-bank notes, do you not 
think that the fact that the Government is ultimately liable for their 
payment w T ould have a greater tendency to give the people confidence 
in them than the plan which you suggest of putting the ultimate redemp- 
tion of those notes on the banks? 

Secretary Carlisle. That of course is a mere matter of opinion. I 
think that the fact that the Government stands behind the national- 
bank notes has a tendency of course to give greater confidence in the 
stability and safety of those notes; but I think that the people are per- 
fectly satisfied with their soundness without that. 

Mr. Walker. You say that the 5 per cent safety fund would be avail- 
able for notes of failed banks in the first place, and, in the second place, 
that the 30 per cent deposited by each bank would be also available, 
and then that the Government would have all the assets of the failed 
banks to pay the notes? 

Secretary Carlisle. Together with the assessment on all the sur- 
viving national banks to make good this safety fund. 

Mr. Walker. In the first place, the 5 per cent is available as an 
asset of the banks ? 

Secretary Carlisle. Oh, no. The whole safety fund is available 
as an asset of the banks. 

Mr. Walker. And then the 30 per cent deposited for each bank? 

Secretary Carlisle. Yes. 

Mr. Walker. And before the safety fund would be trenched upon 
at all ail the assets of the bank outside of it would be liable for the 
payment of the notes? 

After the bank has gone into insolvency, and after those three items 
are exhausted, then you go further and say that the banks which make 
up the safety fund will have a lien upon all the remaining assets of the 
failed bank, as I understand you? 

Secretary Carlisle. Yes. If I understand you, you are simply 
supposing a case. 



NATIONAL CURRENCY AND BANKING SYSTEM. 21 

Mr. Walker. No. I am taking no supposition. I am simply stat- 
ing what you supposed. 

Secretary Carlisle. This is the plan: That the Government shall 
hold 30 per cent of the outstanding circulation of each bank. That 
fund belongs to the bank which deposits it. Then the Government 
shall hold a fund equal to 5 percent of the total amount of circulation 
of all the national banks. That is to be a common fund, and to belong 
to all the national banks for the purpose of redeeming the notes of any 
of those that may fail. 

Mr. Walker. Furthermore, they are to have a prior claim on all 
the assets of the failed bank. 

Secretary Carlisle. I am coming to that. When the bank fails 
the 30 per cent which it has put on deposit is paid into the safety 
fund of 5 per cent and augmented to that extent. 

Mr. Walker. No; it is set over against the assets of the bank. 

Secretary Carlisle. It is paid into the safety fund and the notes 
of the failed national bank are to be paid out of that fund. The 30 
per cent goes to augment that fund. 

Mr. Walker. Then the notes of the failed bank are paid? 

Secretary Carlisle. Then the notes of the failed bank are paid 
immediately out of this safety fund, augmented by the addition of the 
30 per cent, and out of the immediately available assets of the failed 
bank, which are in the hands of the Government receiver and who can 
see exactly what they are. If they are sufficient to redeem all the out- 
standing notes of that failed bank without impairing the fund (that is 
to say, without bringing it down bel^w 5 per cent) there is no assessment 
made on all the banks; but if it appears that this safety fund as thus 
augmented, and the immediately available assets of the failed bank 
that are in the hands of the receiver, are not sufficient to redeem the 
notes of the failed bank without bringing the safety fund down below 
the 5 per cent, then all the other banks are liable to make it good. 

Mr. Walker. It seems to me that the way a business man would 
state it would be this: If a bank fails the 30 per cent on deposit is put 
into the assets to increase the assets, and that first the circulating notes 
are paid. 

Secretary Carlisle. That is the effect of it. 

Mr. Walker. And if they are not sufficient to pay the circulating 
notes of the bank, then the safety fund is called upon to pay the defi- 
ciency, and the banks are all assessed to make up any depletion in the 
5 per cent safety fund. Then you go on to say that still the banks have 
lien upon the failed bank to make the safety fund good. 

Secretary Carlisle. You assume, Mr. Walker, that we are not going 
to provide for redeeming the notes of a failed national bank until we 
have wound up its affairs. We go on immediately to redeem. 

Mr. Walker. I am taking the final result. 

Secretary Carlisle. It might happen, of course, that a bank would 
fail so badly that the 30 per cent and all its assets would not pay its 
notes. That, of course, would be one of those cases of total failure. 

Mr. Johnson, of Indiana. Your plan requires the strong banks to be 
responsible for the weaker ones? 

Secretary Carlisle. That is it. That is taken from the Baltimore 
plan, which seemed to me°t the approval of five or six hundred national 
banks. 

Mr. Johnson, of Indiana. But not to the same extent as your plan. 
It requires only a certain fund to be paid in, and then the Government 
steps in and becomes responsible. 

Secretary Carlisle. You are mistaken in that. 



22 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Indiana. The Baltimore plan does not require the 
Government to be responsible for any deficit, and yours does. 

Secretary Carlisle. No; just the reverse. 

Mr.. Johnson, of Indiana. Well, then, would not your plan be more 
objectionable to the strong banks than the Baltimore plan? 

Secretary Carlisle. I think not. 

Mr. Johnson, of Indiana. Why not? The strong banks would have 
to make good the losses of the failed banks'? 

Secretary Carlisle. Of course in the case of so bad a failure as Mr. 
Walker has assumed, where the failed bank substantially leaves no 
assets at all. 

Mr. Walker. No; I have not assumed that. All the plans assume 
that a bank may fail. My only point was to find out what you meant 
by having the remaining assets of the failed bank available to reimburse 
the banks that are taxed to make up this 5 per cent safety iund, when 
there were not sufficient assets in the failed bank to pay its notes. 

Secretary Carlisle. That assumes that a bank has failed so badly 
that its assets will not pay its notes, which is a very rare occurrence 
indeed. 

Mr. Walker. I believe that only six banks have failed to that 
extent during the existence of the national banking law. 

Mr. Johnson, of Indiana. Suppose that a bank does so fail, the 
Baltimore plan puts the ultimate responsibility on the Government ? 

Secretary Carlisle. Yes; and to that I object. 

Mr. Johnson, of Indiana. Then why should the banks of the country 
approve your plan which makes the strong banks responsible for the 
weak ones? 

Secretary Carlisle. They must decide that for themselves. I am 
looking at the interests of the Government and people, but with a due 
regard also to the interest of the banks. 

Mr. Warner. As I understand it, Mr. Secretary, under your plan the 
final responsibility in the case of a failed bank would be on all the 
national banks, whereas under the Baltimore plan the final responsi- 
bility would be on the Government? 

Secretary Carlisle. Exactly. 

Mr. Warner. In addition to that, under your plan you have the 30 
per cent deposit of legal-tender notes. Do you regard that as neces- 
sary for reasonable safety, or is it out of superabundant caution that 
you require it as an experiment for the time being? 

Secretary Carlisle. I think I ought to say in reply to that question 
that I do not regai d it as absolutely essential to the safety of the notes, 
but I think it is a wise precautionary measure, inasmuch as the Gov- 
ernment is to be entirely exempt from liability lor redemption. I think 
that it is a provision which will operate for the benefit of the Govern- 
ment. 

Mr. Warner. The 30 per cent which each bank has to deposit does 
not go into a common fund, but is to be retained for the redemption of 
the notes of that particular bank? 

Secretary Carlisle. Yes. 

Mr. Warner. Am I right, then, in my view that if the guarantee 
fund proposed at 5 per cent were raised, say, to 7 or 7£ per cent, that 
would afford the same or similar security for the redemption of all the 
notes of failed banks that would be afforded by your 5 per cent pro- 
vision with the 30 per cent deposited of the particular bank? Under 
your plan 30 per cent of the entire outstanding circulation of each 
failed bank would be redeemed by its own deposit, and then there 



NATIONAL CURRENCY AND BANKING SYSTEM. 23 

would be left 70 per cent of its circulation to be redeemed out of the 5 
per cent guarantee fund. Would that insure any more prompt or cer- 
tain redemption than if the redemption of whole outstanding circula- 
tion were provided for by a 7J per cent guarantee fund ? 

Secretary Carlisle. Of course, if your 7 J per cent fund would 
redeem the outstanding circulation, the redemption would be as prompt 
one way as the other. 

Mr. Warner. Seventy per cent of the outstanding notes of a failed 
bank, as I now understand you, are to be a lien on this 5 per cent guar- 
antee fund? 

Secretary Carlisle. That is all. 

Mr. Warner. So that if 100 per cent of outstanding circulation had 
to be redeemed, that 100 per cent would be no greater strain 
upon the 7£ per cent guarantee fund than are the 70 per cent upon 
the 5 per cent fund ? 

Secretary Carlisle. I understand that. The proportion is about the 
same. 

Mr. Warner. Then, if the banks object to the 30 per cent deposit 
and are willing to submit to a 50 per cent larger guarantee fund, would 
not that make the notes as secure in practice or even more secure than 
the plan which you propose? 

Secretary Carlisle. I think that with the 7^ per cent safety fund 
and the common liability of all the banks provided for the notes would 
be safe; but, in my opinion, the banks ought to be required to put up 30 
per cent of the circulation to make their notes perfectly secure. That 
is my opinion. 

Mr. Cox. On the point by Mr. Warner, is there not another additional 
advantage in requiring the greenback deposit to be held in the Treas- 
ury; that so long as it is there it 'prevents the Treasury, to that extent, 
from having to pay gold on the greenbacks thus deposited. That 
advantage is to the Government? 

Secretary Carlisle. That advantage is to the Government. 

Mr. Johnson, of Indiana. You provide for the ultimate taking up 
of these greenbacks? 

Secretary Carlisle. Hereafter. 

Mr. Johnson, of Ohio. I understand that the great advantage 
which you claim for your plan is that it furnishes an elastic currency? 

Secretary Carlisle. That is one of its advantages. 

Mr. Johnson, of Ohio. I can see very clearly the interest of the 
banks to go to the limit — to issue as much currency as they can. Under 
your plan I believe, if carried out, the banks would issue all the cur- 
rency that they can. I wish you to explain what interest they would 
have in reducing their circulation at any time, and what ability they 
would have to meet the emergency after they reached the limit? 

Secretary Carlisle. I do not believe that the banks will imme 
diately issue currency to the full extent. 1 believe that no bank will 
issue circulation on which it has to pay a tax unless the business of 
the country demands it and unless the bank can use it profitably. 
W T henever it can use it profitably it is an evidence that the business of 
the country does require additional circulation, and whenever it can not 
use it profitably the bank will retire it. 

Mr. Johnson, of Ohio. The banks in the South and West that have 
use for money will go the entire limit. 

Secretary Carlisle. Probably they may, but I mean that tlie aggre- 
gate will not be beyond the demands of business. In any particular 
locality where money is in such demand that a bank is justified in issu- 



24 NATIONAL CURRENCY AND BANKING SYSTEM. 

ing increased circulation, I think the bank will issue it, and it ought to 
issue it. On the contrary, when the interests of the locality do not 
demand it, the bank will withdraw its circulation rather than pay a tax 
upon it. 

Mr. Johnson, of Ohio. That tax is a small one. 

Secretary Carlisle. Yes ; but if the bank does not use its circula- 
tion it will retire it. Under the present system it is considerable 
trouble for a bank to withdraw its increased circulation. If a bank 
now desires to withdraw its circulation it must send in lawful money 
to the full amount of the circulation which it desires to retire. 

Mr. Johnson, of Ohio. Will not banks have to do the same under 
your plan 1 ? 

Secretary Carlisle. JSTo, sir. A bank must now send to the sub- 
treasury of the United States the full amount of lawful money of the 
United States in order to withdraw its notes. Having done that, the 
bank is not allowed, under the operation of the law of 1882, to take 
out another dollar of circulation for six months. But under my plan a 
bank may retire its circulation to-day and take it out again to-morrow. 

Mr. Johnson, of Ohio. How % 

Secretary Carlisle. All that it has to do is to send its notes to the 
Treasury Department when it wants to retire them, and redeposit 30 
per cent when it wants to reissue them. I have heard an objection 
made to this plan on the ground that it will require a bank to keep on 
hand all the time a fund for the redemption of its own notes. Now, 
any gentleman acquainted with banking knows that a bank may 
redeem its notes and pay them out again immediately, so that its cash 
is not diminished. 

Mr. Johnson, of Ohio. The German plan provides that banks can 
issue notes by the payment of 5 per cent. 

Secretary Carlisle. Yes; and that is one feature of the Baltimore 
plan — that the banks shall have a right to issue 50 per cent on a safety 
fund and then may issue an emergency circulation equal to 25 per cent 
of its capital. Under the German law the Bank of the Empire is per- 
mitted to issue 335,000,000 marks in what is called "uncovered money." 
If any bank in the country does not wish to take that uncovered money, 
the Bank of the Empire has the right to take it, and in case of emer- 
gency may issue additional notes by paying 5 per cent tax. I do not 
knoAY whether any case has occurred where that bank has availed itselt 
of that privilege. Perhaps it has. But my objection to that plan is 
that at the very time when the people want this additional currency a 
tax is put upon it, whii-h makes it harder to obtain, and that it makes 
a difference between the notes. Why not have all upon an equal 
footing? 

Mr. Johnson, of Ohio. Because you must have elasticity. 

Secretary Carlisle. You will have elasticity if the business of the 
country fluctuates so as to demand more money or less money. 

Mr. Johnson, of Ohio. Some banks will avail themselves of all their 
rights to issue circulation, and some will not. 

Secretary Carlisle. I suppose so. 

Mr. Johnson, of Ohio. If it is an inducement for the banks to issue 
the money, they axe likely to do it. 

Secretary Carlisle. Let me remark that the profit which a national 
bank makes out of its circulation is a very small item on its total profits. 

Mr. Johnson, of Indiana. Your system of making the strong and 
well-managed banks responsible for the weak and ill-managed banks 
might have a tendency to induce banks to incorporate under some 



NATIONAL CURRENCY AND BANKING SYSTEM. 25 

other system than the national banking system, some system which did 
not contain that provision. 

Secretary Carlisle. The national banking system might offer 
other advantages which the other system did not offer. 

Mr. Johnson, of Indiana. Yonr plan provides for both national and 
State banking systems? 

Secretary Carlisle. No; my plan does not provide for any State 
banking system except that the circulating notes of State banks shall 
be exempt from taxation under certain conditions. It simply proposes 
to afford an opportunity for the organization of State banks of issne. 

Mr. Johnson, of Indiana. Can the Government refuse to accept 
notes of a failed bank if your system be enacted into law? 

Secretary Caelisle. Not so long as the notes are in circulation. 

Mr.- Walker. Have you drawn up a bill which embodies the provi- 
sions of your plan ? 

Secretary Carlisle. No, sir; I have drawn one tentatively. 

Mr. Walker. Can you send such a bill to the committee"? 

Secretary Carlisle. I can. 

The Chairman. Mr. Ellis desires me to ask in what funds would 
the notes of the failed banks be redeemed? 

Secretary Carlisle. Just as they are now redeemed, in lawful money 
of the United States. I have here, Mr. Chairman, a bill which I have 
drafted tentatively, and if it is the pleasure of the committee it can 
have it while I am making these explanations. 

Mr. Hall. You were speaking on the question of an elastic currency. 
Does f not the question whether a currency is elastic or nonelastic 
depend on the demands for money? 

Secretary Carlisle. I think so. 

Mr. Hall. No more money would be in circulation than the business 
interests of the community demand? 

Secretary Carlisle. It would not if left to natural laws. 

Mr. Walker. I ask that the hearing be suspended for a moment so 
that we msiy invite the Secretary to hand his bill to the committee. 

Secretary Carlisle. I would like before presenting the bill to have 
an opportunity to examine it a little more critically. 

Mr. Walker. Iask that the record of thehearing beprinted each day. 

The Chairman. The Chair will order that to be done. 

Mr. Brosius. I understand that your plan contemplates an appor- 
tionment of the ultimate responsibility for the notes of failed banks 
between all the national banks of the country in the proportion of 30 
to 70 or 3 to 7 in case there is a very bad break and there are no other 
assets of the bank. I was going to ask you what led your mind to 
adopt that particular ratio of responsibility? W 7 hy did you take 30 
rather than 20 or 40? 

Secretary Carlisle. The idea of taking 30 per cent as the amount 
which should be deposited to secure circulation originated, I think, in 
my own mind, from the fact that under the old system of banking 
which prevailed in this country, and which has prevailed in other 
countries, about 30 per cent of specie was supposed to be necessary to 
secure the redemption of notes. It may be that it was arbitrary, but 
it was about the proportion. Thirty per cent is about the amount 
of specie held in the banks of France, England, and Germany for the 
payment of the notes. Neither of these banks has any specific piece 
of property, or any specific amount of money, pledged for the redemption 
of its notes, and neither of them is required to hold any reserve on 
account of deposits. 



26 NATIONAL CURRENCY AND BANKING SYSTEM, 

Now, as to this plan, it is proposed to impose a tax of one-half of 1 
per cent per annum, payable semiannually upon the average amount 
of notes in circulation, to defray the expenses of printing notes, official 
supervision, cancellation, etc. The tax now is 1 per cent, but I think 
that one-half of 1 per cent will be amply sufficient for this purpose. 
It is proposed that in ascertaining the average amount of outstanding 
circulation there shall be included all the notes of each national bank 
that have been actually issued to it and which have not been redeemed 
and canceled. 

I make that suggestion for this reason : There is a question now 
whether in assessing this tax upon the average amount of national- 
bank circulation we are to include any of the bank's own notes which 
it has in its own possession, although the notes are not canceled and 
are not in fact redeemed by the bank, bnt are held as part of its cash. 
It is known that the Attorney General of the United States has given an 
opinion that they are to be excluded, and the consequence is that we 
shall, perhaps, have very large claims made against the Government for 
refunding this tax alleged to have been improperly collected for thirty 
years past. 

Mr. Warner. You mean upon the notes held by the banks as their 
till money"? 

Secretary Carlisle. Yes, I think that when a national- bank note is 
paid into the bank by a depositor and is not received by the bank for 
the purpose of being canceled and is not canceled, it ought to be within 
the meaning of the law just as much in circulation as if it had been 
paid into any other national bank. 

The Chairman. Now, in regard to the fifth proposition, which is that 
there shall be no national-bank note of a less denomination than $10. 
Will you please explain % 

Secretary Carlisle. The fifth proposition is that no national-bank 
note shall be of less denomination than $10, and that they shall be 
uniform in design, but that banks desiring to redeem their notes in gold 
may have them made payable in that coin. The first part of this pro- 
vision, I think, ought to be adopted and put in any plan of currency 
reform that may be agreed to by Congress. There are now, as shown 
in my report, about 318,000,000^ of United States legal- tender notes, 
Treasury notes under the law 1800, silver certificates and national- 
bank notes outstanding of less denomination than $10. There have 
been 337,000,000 of silver certificates issued. So it will be perceived 
that the field now occupied by small notes of various kinds affords 
an opportunity for the circulation of all the silver certificates outstand- 
ing except $19,000,000. 

But these silver certificates are performing the work of the country 
to-day, according to my observation. Gentlemen will find that the 
money in their pockets consists largely of silver certificates. But if 
we are to have these various kinds of money in circulation,! am unable 
to see why it would not be a wise policy on thepart of Congress to pro- 
vide a safe place where the silver certificates can be used by the 
people, so as to keep them outstanding and prevent them from coming 
back into the Treasury. At some seasons of the year we are overloaded 
with silver certificates. Therefore, I propose to provide not only for 
the retirement of national-bank notes under the denomination of ten 
dollars, but all other notes as well. 

Mr. Hall. Would that leave under the control of the Government 
money under the denomination of ten dollars? 

Secretary Carlisle. Certainly. 

Mr. Hall. There is one clause in that fifth provision which worries 



NATIONAL CURRENCY AND BANKING SYSTEM. 27 

me more than any clause in the bill; and that is, a But banks desiring 
to redeem their notes in gold may have them made payable in that coin." 
I would like to hear you upon that clause. 

Mr. Warner. But first as to the condition on which State banks may 
issue currency without the inhibition of the present tax. Do I under- 
stand that you would or that you would not require that the notes of 
the State banks should be of the denomination only of ten dollars and 
upward 1 

Secretary Carlisle. I havenot included that in my plan, although I 
have thought a good deal about it. I have not determined in my own 
mind as to whether or not (as these notes are to be substantially for local 
circulation) it would be a good policy to limit their denomination. That 
is one of the questions I would like the committee to consider and to 
decide for itself. I mean as to the notes of State banks. 

Mr. Warner. In case national-bank notes are limited to $10 and 
upward, would not the exemption of State banks from that limitation 
take away the benefit which you propose by limiting the denominations 
of national-banknotes'? 

Secretary Carlisle. Undoubtedly, to some extent. 

Mr. Johnson, of Indiana. It might give banks a greater inducement 
to organize under State law*? 

Secretary Carlisle. It might. Those are considerations which have 
occurred to me, but which I have not decided in my own mind. 

Mr. Walker. You contemplate that the notes which would be issued 
by State banks would be practically local notes? 

Secretary Carlisle. Would be used for local circulation. Now, in 
reply to Mr. Hail's question, section 5185 of the Kevised Statutes reads : 

Sec. 5185. Associations may be organized in the manner prescribed by this Title 
for the purpose of issuing' notes payable in gold; and upon the deposit of auy United 
States bonds bearing interest payable in gold with the Treasurer of the United States, 
in the manner prescribed for other associations, it shall be lawful for the Comptroller 
of the Currency to issue to the association making the deposit circulating notes of 
different denominations, but none of them of less than five dollars, and not exceeding 
in amount eighty per centum of the par value of the bonds deposited, which shall 
express the promise of the association to pay them, upon presentation at the office 
at which they are issued, in gold coin of the United States, and shall be so redeem- 
able. But no such association shall have a circulation of more than one million of 
dollars. 

That last provision has been repealed. Section 518G of the Kevised 
Statutes reads : 

Sec. 5186. Every association organized under the preceding section shall at all 
times keep on hand not less than twenty-five per centum of its outstanding circula- 
tion, in gold or silver coin of the United States; and shall receive at p ar in the pay- 
ment of debts the gold-notes of every other such association which ^t the time of 
such payment is redeeming its circulating notes in gold coin of the United States, 
and shall be subject to all the provisions of this Title: Provided, That, in applying 
the same to associations organized for issuing gold-notes, the terms ''lawful money " 
and "lawful money of the United States'' shall be construed to mean gold or silver 
coin of the United States : and the circulation of such associations shall not be within 
the limitation of circulation mentioned in this Title. 

On the Pacific Coast paper currency is not much in circulation, 
athough perhaps the gold banks are confined exclusively to the city of 
San Francisco. I thought that inasmuch as these banks are now author- 
ized by law, and as they are in existence, and are required to keep on 
hand 25 per cent in gold or silver coin, in addition to their other security, 
I would not propose to disturb them. 

Mr. Hall. You do not see any possible danger that may result 
from them to the rest of the United States? 



28 NATIONAL CURRENCY AND BANKING STSTEM. 

Secretary Carlisle. I can not see why if a national bank desires 
to bind itself to redeem its notes in gold it may not do so. 

Mr. Eussell. Without that gold provision these banks would have 
the right to redeem their bills in lawful money? 

Secretary Carlisle. Yes, just as every other bank is required to 
redeem its bills in lawful money. 

Mr. Eussell. You think that this new currency will be retained on 
a parity with gold, although it can be redeemed in silver? 

Secretary Carlisle. It can be redeemed in silver now. This will 
not change the law in the least. The national-banking law provides 
that the national banks shall redeem their notes in lawful money. The 
Government is now required to make the current redemption of bank 
notes iu United States notes, but, as a matter of fact, we do not always 
do so. 

Mr. Eussell. But if you take away this power will these new notes 
be on a parity with gold ? 

Secretary Carlisle. So long as the Government keeps the whole 
volume of currency on a parity with gold silver will be as good as gold. 

Mr. Walker. It will not change the conditions an iota. 

Mr. Sperry. What class of money do you now redeem in gold? 

Secretary Carlisle. United States legal- tender notes of the old 
issue and the Treasury notes of 1890. 

Mr. Sperry. Popularly known as the Sherman Act ? 

Secretary Carlisle. Yes. 

Mr. Sperry. No others? You do not redeem silver certificates in 
gold? 

Secretary Carlisle. No ; we never have done so. 

Mr. Sperry'. You do not redeem silver dollars in gold, either? 

Secretary Carlisle. Never. 

Mr. Sperry'. Your plan contemplates the retirement of greenbacks? 

Secretary Carlisle. Ultimately. 

Mr. Sperry. Then ultimately there would be no paper money out- 
standing payable in gold? 

Secretary Carlisle. No money which the Government would be 
bound to redeem in gold except gold certificates. 

Mr. Sperry. If your plan should retire the greenbacks there would 
be no paper money on which the Government would have to pay gold? 

Secretary Carlisle. No, sir. 

Mr. SPERRY r . Then we would be on a silver basis? 

Secretary Carlisle. No. 

Mr. Sperry. On what basis would we be? 

Secretary Carlisle. On the same basis as now. The Government 
would continue to receive gold and silver, and gold and silver certifi- 
cates for customs and for all other dues to the Government, and would 
receive national -bank notes for all dues to the Government except cus- 
toms, and it would maintain the parity of the two metals in that way. 
We do not maintain the parity of the two metals by redeeming silver 
dollars or certificates in gold, but by the constant practice of receiving 
them in full satisfaction of every debt due to the Government, and pay- 
ing the man to whom the Government owes money gold if he wants it. 
We make no distinction between gold and silver at the Treasury 
Department. If any creditor of the Government wants silver he gets 
it, and if he wants gold he gets it. 

Mr. Sperry^. The Government now maintains parity by redeeming 
the Sherman notes and the greenbacks in gold. But after the Sher- 
man notes and the greenbacks are all retired there would be no way of 



NATIONAL CURRENCY AND BANKING SYSTEM. 29 

maintaining parity except as the Government receives either gold or 
silver in payment of duties. 

Secretary Carlisle. Yes; and of course the banks must maintain 
their credit by paying their customers gold if they demand it. 

Mr. Warner. Would not the working of your bill, by eliminating 
small denominations of notes, reduce the proportion of silver and increase 
the proportions of gold in the hands of the banks'? 

Secretary Carlisle. That is my theory about it exactly. It makes 
a place for the silver. 

Mr. Warner. And you think there would be a greater tendency 
than there is now on the part of the banks to pay gold for notes? 

Secretary Carlisle. Undoubtedly. 

Mr. Johnson, of Ohio. Do you provide for any other means of a 
demand to take out circulation! In other words, the present bank 
deposit is $225,000,000, of whicli the bulk is in greenbacks, and the 
banks hold these greenbacks, although they can have any other money. 

Secretary Carlisle. Undoubtedly. So they could hold all the gold 
of the country, if they had not the greenbacks. 

Mr. Johnson, of Ohio. There are only 500,000,000 of these legal- 
tender notes, and the gold in the banks amounts to more than 
$500,000,000. 

Secretary Carlisle. There are not more than $500,000,000 gold 
outstanding outside of the United States Treasury. You may put these 
extreme cases that would defeat any plan. You can not legislate for 
all time to come. You must legislate for the present. 

Mr. Walker. Have you thought of how long a time it would take 
to retire the greenbacks? 

Secretary Carlisle. It might be that it would take twenty years, 
and it might be done in five or six years. If the proposed law had been 
in force during Mr. Cleveland's last administration, or during Mr. 
Harrison's administration, the greenbacks would have been retired. 

Mr. Sperry. Is there a discrimination made at present by the banks 
in favor of greenbacks'? 

Secretary Carlisle. As a general rule the banks keep considerable 
amounts of them in their vaults. I think if you go into any bank you 
will find the silver certificates all on the top in the piles of money that 
they are using daily, and that the other notes are at the bottom. 

Mr. Sperry. If the time should come, what reason have you to sup- 
pose that the entire receipts of the Government would not be paid in 
silver? 

Secretary Carlisle. I do not think there would be silver enough to 
do it. Silver now constitutes only one-fifth of our entire circulation, 
and if my suggestions should be adopted to retire all the notes under 
the denomination of $10 and to leave that whole field to be occupied by 
silver, and by silver certificates, I think it would be so occupied. Dues 
to the Government are not paid, as a general rule, with small bills. 
They are inconvenient to handle in large amounts, and consequently 
dues to the Government are paid in large bills, so that silver bills of 
small denominations will not come back to the Treasury. The country 
must have small currency, as it is impossible to transact the daily busi- 
ness of the people without it. 

Mr. Walker. You mean small currency as distinguished from coin? 

Secretary Carlisle. I mean small paper currency or coin. The 
people must have some medium of a character which they can use in 
small transactions. That is what keeps our subsidiary coin out. It is 
not legal tender except up to the amount of $10, yet it is in circula- 
tion just like other money. 



30 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. Would it not be wise to make subsidiary coin legal 
tender for any amount, and for this reason : The people can not get it 
conveniently out of the banks now, because the banks do not hold it in 
large quantities. I am clearly of opinion that there should be no limit 
to the legal- tender quality of any money issued by the Government 
except nickel and copper coins. Do you think that subsidiary silver 
coin should be made legal tender to any amount! 

Secretary Carlisle. I would not like to express a very positive 
opinion on that single proposition. But it is very evident to my mind 
that our legislation in reference to subsidiary silver coins needs revision 
in some way to relieve the Government from the obligation which rests 
upon it all the time of redeeming it in lawful money. As you say, 
nearly everybody in this country (at least in towns and cities) keeps a 
bank account. They get this subsidiary coin into their possession, and 
they take it to the banks. The banks can not pay it out very well. 
They can not use subsidiary coin in the payment of checks except, per- 
haps, to the amount of 75 cents, and they can not keep it in their re- 
serves. The result is that when it accumulates in the bank, the bank 
takes it to the sub treasury, and we find it hard to get out again into 
circulation. If it were made legal tender, perhaps that would cure the 
trouble, or if the Government were exempted from the responsibility of 
redeeming it in other lawful money it would not come back to us. 

The Chairman. The Secretary will please explain the ninth section 
of his bill — the repeal of all provisions of law requiring banks to keep 
a reserve on account of (deposits. 

Secretary Carlisle. On that subject I have said, perhaps, all that 
I can say in the report submitted to the House of Representatives. I 
am very decidedly of the opinion myself that the provisions of law 
which require banks to hold a certain fixed reserve against deposits is 
injurious rather than beneficial. I can imagine very well what would 
have been the condition of the Treasury Department a year ago last 
April if there had been a law on the statute books which provided 
expressly that the Secretary of the Treasury should not use any part 
of the gold reserve except on penalty of impeachment, or of fine and 
imprisonment. 

That is the case of the banks now. Every bank is now required, 
whenever it infringes on its reserve, to make it good within thirty 
days, or take the risk of having the Comptroller of the Currency put it 
in the hands of a receiver. As a matter of fact, State banks which 
are not required by law to keep a fixed reserve, do keep it; if they 
are well managed, they keep an adequate reserve. In other words, if a 
bank is well managed it will always keep enough cash on hand to 
meet the demands of its depositors; and I do not see how a provision 
of law which prevents them from using that reserve for the purpose 
for which it was intended can be wise. But that is a matter in which 
the Government and the Secretary of the Treasury can have no special 
interest. But to say to a bank that it shall keep 15 or 25 per cent 
reserve against its deposits, and shall not use it at the time when it 
is needed, seems to me almost absurd. 

Mr. Walker. I agree with you fully in that. 

Mr. Hall. The authority of the Government for instituting a system 
of guaranteeing the redemption of notes circulating as money is based 
upon the broad principle of the power of the Government to regulate 
matters in regard to finance. Where is there any authority in the Con- 
stitution or in the original formation of the Government for the United 
States Government to look into the question of deposits and discounts 
of banks ? 



NATIONAL CURRENCY AND BANKING SYSTEM. 31 

Secretary Carlisle. I have expressed my opinion about that in my 
report. Of course my opinion upon this subject is theoretical; but it is 
my opinion, nevertheless, that it is not the business of the Government 
to interfere with the private affairs of a bank with its depositors any 
more than it is its business to interfere with manufacturing or com- 
mercial corporations. The matter of depositing money in a bank is a 
matter between the bank and its customers, and nobody else. The bank 
does not acquire its right to receive deposits from any Government 
authority. I can receive deposits if anybody is willing to make them 
with me. It is entirely a matter of private concern between the parties. 
If the Government undertakes to superintend the issue of paper to cir- 
culate as currency then the Government does assume the duty of seeing 
that it is a safe currency. 

Mr. Hall. Does not this reserve fund in itself tend to impair the 
elasticity of the currency? 

Secretary Carlisle. It does, and at the very time when currency is 
most needed. A bank should have the right to use all its resources for 
the benefit of the community in which it is located, and should not be 
compelled to disappoint people whose necessities compel them to borrow 
money. The great banks of Europe are not required to keep any reserve. 
The Bank of England has found itself six or seven times, in its history of 
two hundred years, with its reserve run down. Whenever the reserve 
runs down in England now, without any authority of law, but by the per- 
mission of the Government authorities, the banking department calls 
upon the issue department to let it have additional notes, and puts up 
security of some kind. In other words, the banking department pur- 
chases from the issue department a certain amount of notes, or the issue 
department purchases from' the banking department a certain amount 
of securities, and pays for them in new notes. 

Mr. Warner. There is a question in my mind as to whether a repeal 
of all the provisions of law as to national banks requiring a reserve on 
account of deposits might not have the result of giving national banks, 
an advantage over State banks in cases where the State chooses to pro- 
vide that its institutions shall keep a reserve against deposits. 

Secretary Carlisle. Yes. 

Mr. Warner. So that it would practically prevent a State from 
enforcing, as a general principle, throughout its borders, the keeping of 
any reserve against deposits'? 

Secretary Carlisle. It will be observed, however, that the reserve 
which is required to be kept by the national banking system, and which 
would be required to be kept by the State banking laws, does not con- 
sist of the money of the banks. It is not the bank's capital that is 
reserved; it is the depositors' money. It is the money which the 
depositors put in, and for the State to say to depositors they must not 
take out the money they had put in because the bank has made dis- 
counts down to or below 25 per cent of its deposits would not be exactly 
right. 

Mr. Warner. I agree with you entirely. How do you distinguish 
between money of the banks and money of the depositors as to the re- 
serve ? 

Secretary Carlisle. You can not say, of course, that any particular 
bill belongs to a bank or to a depositor; but if a bank has deposits to 
the amount of $500,000 the reserve simply diminishes its discount 
fund. 

Mr. Walker. It is admitted to be necessary for the safety of the 
bank that it shall keep a reserve, which experience has shown on, 



32 NATIONAL CURRENCY AND BANKING SYSTEM. 

the whole, bears a certain proportion to its deposits. There is a bill 
before this committee to allow banks to make use of its reserve to any 
extent, provided it averages for thirty days the reserve required, and 
that if it does not that the bank shall pay interest to the Government 
on the average deficiency. Is it not better to preserve the present 
law, rather than to leave the banks at liberty to have no reserve, when 
nine-tenths of the banks get most of their knowledge of banking from 
the very act itself? 

Secretary Carlisle. I agree with you that no bank can be safely 
managed without having a reserve fund, and I think that if a bank 
did not keep something on hand to pay its depositors they would not 
continue business with it very long. 

Mr. Walker. Is not the reserve the safety fund for the depositors in 
the bank of the same character as the safety fund which you propose 
for the bill holders? 

Secretary Carlisle. The bill goes into the community. The people 
can not transact business well without using it, and they look to the 
banking act to see whether the bill is safe or not; but the dealings of 
depositors with banks is entirely voluntary on their part. It is a credit 
which they give to the banks. 

Mr. Walker. You say that it is entirely voluntary whether a man 
uses a bank or not. Legally that is so, but practically and morally no 
man can do business unless he uses a bank. 

Secretary Carlisle. JSFor can he not do business without buying food 
and clothing but he determines for himself where he will purchase them. 

Mr. Walker. We are talking now about regulating banks, not about 
food or clothing. A majority ot the depositors in a bank have no means 
of knowing anything about the bank, and do you not think that if we 
are regulating the banking system at all that we should regulate the 
reserve ? 

Secretary Carlisle. There might be some way of relaxing it which 
would be satisfactory. 

Mr. Walker. Have you examined the way of relaxing it in the bill 
H. E. 171? 

Secretary Carlisle. No, sir,* I have not. 

Mr. Walker. Do you hold that the Government owes no duty to 
the depositors in a bank? 

Secretary Carlisle. The Government is under no more obligation 
to bank depositors than to any other citizens. 

Mr. Warner. Would it be inconsistent in the plan you suggest if 
section 9 should be modified by providing that the States in which 
national banks are situated may require of national banks such a 
reserve on account of deposits not greater than the reserve required 
from their own State institutions. 

Secretary Carlisle. That would still leave them liable to have an 
inflexible rule put upon them. 

Mr. Warner. Would not your proposition practically prevent the 
State from enforcing, in regard to any banking institution, any pro- 
vision for a reserve? And should not the States be left free to enforce 
such reserve in the case of national banks as they enforce in the case 
of their own banks — the question of deposit being one entirely for the 
States and not for the United States? 

Secretary Carlisle. That might have the effect of operating in favor 
of the national banks instead of in favor of State banks. 

Mr. Warner. Would it not entirely wipe out State banks as banks 
of deposit? 



NATIONAL CURRENCY AND BANKING SYSTEM. 33 

Secretary Carlisle. If the States should require their banks to hold 
reserves against deposits, aud the national banks in fact held none, the 
State banks would be safer and more attractive to depositors than the 
national banks. I do not think that a man capable of managing a 
bank would think that he could loan out, all the time, every dollar in 
the bank and have nothing to meet the demands of his depositors. 

Mr. Warner. Would not the ninth section be practically an inhibit 
tiou against the States requiring banks to keep a reserve on account of 
deposits ! 

Secretary Carlisle. It might have that effect. 

The Chairman. Now, as to section 11 of your proposed bill. 

Secretary Carlisle. I have set out in this report the outlines of a 
plan for exempting the use of circulating notes issued by State banks 
from taxation on certain conditions, which embodies my views on the 
subject, as a practical question. Theoretically I do not believe that 
the Government of the United States should impose any tax upon 
notes lawfully issued by a State bank. But there is such a tax, and 
its validity has been declared by the Supreme Court of the United 
States; and it seems impossible, or at least impracticable, under the 
present circumstances, to repeal it absolutely; audit might not be good 
financial policy, even if it were practicable. My idea was that we 
would relax it so that it would not be absolutely prohibitory. I believe 
that a State-bank note issued under the conditions set out in this plan 
would be safe. 

We are to have the individual liability of the stockholders. We 
would have the 30 per cent on the circulation always retained, and 
we would have all the other safeguards heretofore mentioned. I think 
we would have, I will not say, a perfectly safe bank note (perhaps that 
would be a little too strong an expression), but we would have a reason- 
ably safe bank note for the use of the people. The third paragraph in 
this plan requiring a provision of law making stockholders individu- 
ally liable I would amend by providing that it shall not apply in the 
case of administrators, guardians, trustees, etc., provided the estates 
and funds in their bands belonging to the cestui que trust are liable 
under the law. In other words, I would exempt from personal liability 
a trustee or administrator. 

Mr. Cox. After these limitations and conditions have been complied 
with by a State bank which desires to go into banking, who is to 
decide and settle the question as to whether the conditions and limita- 
tions under the act have been complied with ? Where would you lodge 
that authority % 

Secretary Carlisle. This plan proposes that the notes of State 
banks shall be exempted from taxation when it is shown, to the satis- 
faction of the Secretary of the Treasury and of the Comptroller of the 
Currency, that all the conditions have been complied with. Under this 
plan no authority would be issued in advance to a State banking asso- 
ciation to issue notes without taxation. But a State bank would organ- 
ize itself under the law and proceed to issue its notes, and when the 
time came to collect the tax upon its notes it would simply be required 
to show to the Secretary and Comptroller that it had complied with 
all the conditions of the law, and therefore no tax would be assessed 
upon its notes. 

Mr. Cox. The bank, under that statement, would have to assume the 
responsibility that it had complied with the conditions of the law, and 
if the United States authorities decide that it had not, it would be 
subject to taxation on its notes. 

NAT CUR 3 



34 NATIONAL CURRENCY AND BANKING SYSTEM. 

Secretary Carlisle. Yes; Itliiuk tliat would be sufficient to induce 
the bank to comply with the conditions of the law. 

Mr. Cox. I have no doubt that in that case the proper authorities 
would issue rules so as to instruct its subordinate officers how to 
proceed. 

Secretary Carlisle. The officer making the inquiry in regard to 
the taxation would have the right to take all reasonable steps to ascer- 
tain the facts. If necessary for him to see the books of the bank, he 
could see them. It is true that there would be no provision in the 
law compelling a State bank to submit to an examination of its affairs, 
but if the agent of the Treasury Department made a request to be 
permitted to see the books of the bank, and the bank declined, the 
agent's answer would be very brief. It would be, "Very well, you 
must pay the tax." 

Mr. Warner. Wh at difference do you intend between the u deposit" 
or custody of the guarantee fund in United States legal-tender notes 
on the part of a State bank and the "keeping" guarantee fund of 30 
per cent in the case of a national bank? 

Secretary Carlisle. I have thought about that a good deal, and 
have not come to any entirely satisfactory conclusion in my own mind 
as to whether the bank should be allowed to keep that deposit in its 
own vaults or whether it shall be required to keep it with some State 
authority. 

Mr. Johnson, of Indiana. Why not with some national authority? 

Secretary Carlisle. Because I do not think that national authority 
has anything to do with it. I think that all the power which the 
United States has on this subject, if any, is the power to tax as laid 
down by the Supreme Court, and I think that you may tax upon con- 
ditions as well as tax absolutely. But I do not think that the Govern- 
ment of the United States has any authority to take hold of a State- 
bank system or to manage the affairs of a State bank except to the 
extent of saying that it will not tax State-bank notes under certain con- 
ditions. 

The Chairman. Would you leave the reserve in the vaults of State 
banks and require national banks to put their reserve in the vaults of 
the National Treasury? 

Secretary Carlisle. The effect on the bank is just the same, but I 
am not clear in my own mind whether we should permit State banks to 
keep the 30 per cent reserve in their own vaults or require them to 
deposit it with some State official. 

Mr. Johnson, of Indiana. Would not that offer superior inducements 
to the State bank instead of to the national bank? 

Secretary Carlisle. I do not think it would offer superior induce- 
ments. If a bank desires to withdraw any part of its reserve it can 
redeem its notes and withdraw part of its reserve. If a bank proposes to 
manage its affairs honestly, it makes no difference to it whether its 
reserve fund is in its own vaults or in the vault of some public official 
in the State or here. 

Mr. Johnson, of Indiana. Would not the fact of the reserve being 
in their own vaults be an extra inducement to State banking? 

Secretary Carlisle. I think that depends altogether upon the pur- 
pose of the bank. If a bank desires to conduct its affairs honestly and 
faithfully, it does not make a particle of difference whether its guarantee 
fund is kept in its own vaults or anywhere else. If it wants to use its 
guarantee fund in violation of law, of course it would want to keep it 
in its own vaults. 

Mr. Walker. If you are going to put any conditions at all upon 



NATIONAL CURRENCY AND BANKING SYSTEM. 35 

State banks, why not put on the condition that 30 per cent of its circu- 
lation shall be in the custody of the United States ? Do you not assume 
(in Saying that this reserve fund may be left in the custody of the 
State banks) that you have more confidence in their integrity than you 
have in the integrity of the national banks? 

Secretary Carlisle, ^ot at all. If a bank puts its 30 per cent fund 
here the Secretary of the Treasury has to keep a strict account of every 
note issued by that bank. 

Mr. Walker. You have to do so in any case. 

Secretary Carlisle. INTot at all. We would have to issue notes to the 
State banks, and we would have to take charge of its whole business 
substantially so as to know all the time what circulation each bank 
had out; and whenever it retired notes we would have to register 
and destroy them. This would send the entire issue business of the 
State banks to the Treasury Department of the United States. 

Mr. Warner. Just as much so as national banks. 

Secretary Carlisle. Exactly. 

Mr. Walker. If I understand your purpose in having State banks 
and national banks, it is that business men and bankers may elect 
whether they will take the State-bank note or the national-bank note. 
If that is your reason, ought not the appearance of the State-bank 
note be entirely dissimilar to that of a national bank note? 

Secretary Carlisle. Certainly. That is provided for. "The Sec- 
retary of the Treasury may, under proper rules and regulations, to be 
established by him, permit State banks to procure and use in the prepa- 
ration of their notes the distinctive paper used in printing United 
States securities; but no State bank shall print or engrave its notes 
in similitude of United States notes or certificates or national-bank 
notes." 

Mr. Walker. My point is this : That the note would be in the eye 
of the law, or after a critical examination, or even any examination, in 
the similitude of a United States note; and if it is printed on the same 
paper, I submit that in taking those notes in quantities, or singly, peo- 
ple could hot at once determine or decide whether it was a State note 
or a United States note, although they might not desire to handle State 
notes. It seems to me that if you have a distinctively colored paper, 
the color of the paper ought to be such that the difference would be 
apparent at once and conspicuous, and that that provision of your 
bill does not reach to that extent. 

Secretary Carlisle. The provision goes only to the extent of pro- 
viding that the State note shall not be in the similitude of a United 
States note. Of course every note issued by a State bank would have 
on it the name of the bank and the name of the State, and the note as 
a whole, as to ornamentation and style, would have to be different. 
I thought it would be necessary to have the distinctive paper, if i)ossi- 
ble, in order to guard against counterfeiting, but that is a matter of 
detail. 

Mr. Walker. It seems to me, Mr. Secretary, that the plan you have 
given us interfere' s with State banks. 

/Secretary Carlisle. It does not interfere at all. The plan only 
permits them to do certain things if they want to do it. 

Mr. Walker. That it does interfere is the way it reaches my mind. 

Secretary Carlisle. I do not so regard it. 

Mr. Walker. I understand that, but you can see at once that it is 
furnishing the opportunity for a State-bank note to appear before the 
community in the dress and similitude of a United States note, because 
the color of the note and paper is the same. Where a man takes a note 



36 NATIONAL CURRENCY AND BANKING SYSTEM. 

nowadays, in counting a hundred dollars, tie takes very little notice of 
anything more than the denominations of the notes; he sees that they 
are similar in color, though different in portions of the engraving and 
the name; but, without a critical examination, such as a citizen ought 
not to be required to give a note in business transactions, be can not 
tell whether the note is a greenback, a silver certificate, or a national- 
bank note. 

Secretary Carlisle. They are notes, however, of different characters. 

Mr. Walker. But they are all equally good. 

Mr. Johnson, of Indiana. Under your plan would not the State bank 
be to a limited extent under the control of the Federal Government ? 

Secretary Carlisle. No. 

Mr. Johnson, of Indiana. As I understand it, it must come under 
Federal supervision to some extent before it has any right to issue 
notes. 

Secretary Carlisle."! disclaim any authority on the part of the 
Government to control. They can be taxed, it is true, but this plan 
simply provides that if they comply with these conditions we will not 
tax their notes ; we can not require them to comply. ^'ZZ 

Mr. Johnson, of Indiana. Do you not think, if you impose in your 
plan certain necessary conditions precedent before a State bank can 
issue notes, that that is, to a certain extent, subjecting it to national 
control? 

Secretary Carlisle. No ; I think not. My own position would lead 
me logically to the absolute repeal of the tax. 

Mr. Johnson, of Indiana. Were there not many charters under 
which State banks of issue issued paper before the war, which char- 
ters contained all of the limitations and restrictions on the powers of 
the banks that are found in your plan? 

Secretary Carlisle. I am not able to say, Mr. Johnson, how many 
of them, if any, contained those conditions. 

Mr. Johnson, of Indiana. You do not know? 

Secretary Carlisle. No, sir. 

Mr. Johnson, of Indiana. The safety of a note to the people con- 
sists not so much in the provisions of the charter as in the enforcement 
of those provisions; am I not right about that ? 

Secretary Carlisle, You can not enforce a provision unless it is 
contained in the charter. 

Mr. Johnson, of Indiana. But I say the safety of a note in the 
hands of the holder depends not so much upon the provisions of the 
charter of the bank as upon the rigid enforcement of the provisions of 
that charter. i 

Secretary Carlisle. Certainly, the bank must not violate, but if it 
does it must be held to the execution of the law in its Charter. 

Mr. Johnson, of Indiana. There is no power of visitation or exami- 
nation, and nothing requiring reports at the hands of the State bank 
to the General Government in your plan, is there? 

Secretary Carlisle. ISTo; but the State bank must satisfy the Sec- 
retary of the Treasury and Comptroller of the Currency that it has 
complied with these conditions, and must comply with whatever request 
those officials make of it, or it will be taxed. 

Mr. Johnson, of Indiana. What preliminary power or authority 
do you give to the General Government to ascertain from time to time 
whether or not the State bank, under your plan, is complying with the 
limitations which you propose tp impose? 

Secretary Carlisle. Do you mean the institution of an investiga- 
tion, independently of the question of taxation? 



NATIONAL CURRENCY AND BANKING SYSTEM. 37 

Mr. Johnson, of Indiana. So that the Secretary and Comptroller can 
readily ascertain whether or not the conditions have been complied 
with. 

Secretary Carlisle. Every power that any intelligent man would 
consider necessary in such a case. 

Mr. Johnson, of Indiana. Point out, if you please, what is reserved 
with reference to that particular point by your plan. 

Secretary Carlisle. We do not propose to do it at all. We do not 
believe that we ought to have the power to examine without the consent 
of the bank. 

Mr. Johnson, of Indiana. Then there is no power in your plan, as I 
understand, which authorizes the General Government to visit these 
banks to inspect them, or to require reports of their condition from time 
to time, in order that the Government officials may see that they are 
complying with the law under which they are allowed +c issue notes 
without the 10 per cent tax? 

Secretary Carlisle. Xo express authority is given to any officer, as 
a matter of right, to visit any State bank and inspect its books and 
accounts. But the Secretary of the Treasury and the Comptroller ot 
the Currency have the right to require, and will require, the banks to 
furnish to them information necessary to enable them to decide whether 
the banks have complied with these conditions or not ; in other words, 
the power to see that they are rightfully exempt from taxation. 

Mr. Johnson, of Indiana. Suppose the bank complies with that 
requirement for a period of time, and then there arises a suspicion that 
it is not complying; what power has the Government, under your plan, 
to see that the bank is still acting in good faith, or otherwise? 

Secretary Carlisle. Every power that an intelligent man can pos- 
sibly want to exercise, because we can say to the bank, " We will tax 
you unless you show to our entire satisfaction that you have complied, 
during the whole of this year, with the conditions imposed." The taxes 
will be payable every year. At the time when the tax becomes pay- 
able, a bank will apply for exemption, and will undertake to show to the 
Secretary of the Treasury and the Comptroller of the Currency that it 
is entitled to exemption because it has complied with ail these condi- 
tions. The Secretary of the Treasury and the Comptroller of the Cur- 
rency may then say to the bank, " The evidence you have furnished us 
upon this subject is not satisfactory; we want something further; we 
want to look at your books and accounts." I say such a case might 
arise. Suppose the bank declines; then all the power we have is to 
tax the notes. 

Mr. Cobb, of Alabama. And that will destroy the bank. 

Secretary Carlisle. Yes; but the bank can carry on business with- 
out making itself amenable to these requirements. In that case, how- 
ever, you destroy it as a bank of issue. 

Mr. Cobb, of Alabama. It seems to me that it is a destruction of the 
bank. 

Secretary Carlisle. There is not only a tax of 10 per cent upon 
that bank itself for each one of the notes it has paid out, but there is 
a tax upon every other bank that has paid out those notes during the 
whole year. 

Mr. Johnson, of Indiana. A tax on every dollar every time it is paid 
out? 

Secretary Carlisle. Every time. 

Mr. Johnson, of Indiana. Suppose the bank presents what it deems 
sufficient evidence to the governmental authorities that it is exempt 



38 NATIONAL CURRENCY AND BANKING SYSTEM. 

from taxation and they are not satisfied, but propose to tax the bank; 
what remedy has tke.bank when the evidence is not regarded as ample? 

Secretary Carlisle. If it has been compelled to pay an illegal tax, 
I suppose the bank would have the same remedy that anybody else 
would have under the same circumstances. 

Mr. Hall. May I ask you a question right there? 

Secretary Carlisle. Yes. 

Mr. Hall. On the same line that Mr. Walker and Mr. Johnson have 
questioned you, I want to know if the parties most vitally and deeply 
interested in the validity of the circulation and use of that currency 
are not the banks themselves? 

Secretary Carlisle. Yes. 

Mr. Hall. If they fail to put forward a currency that would circu- 
late as well as any other currency, are they not the persons who will 
be most injured thereby? 

Secretary Carlisle. I think so. 

Mr. Johnson, of Indiana. And would not the doctrine of the u sur- 
vival of the fittest" currency apply to the issue of State-bank cur- 
rency, as well as to any other kind? 

Secretary Carlisle. I think so. 

Mr. Warner, As a matter of fact, Mr. Secretary, would not these 
examinations which would take place in fact, although not expressly 
provided for under your plan, probably be in the end the best adver- 
tisement that a bank of issue could have, just as in the case of exami- 
nation of insurance corporations nine-tenths of their advertising con- 
sists of the publication of the results of examinations? 

Secretary Carlisle. Undoubtedly that would be the case with the 
banks. 

Mr. Johnson, of Indiana. Was it not the case before the war that 
State bank notes which had so depreciated that they were at a discount 
continued to have currencj^, and that people were compelled to take 
them? 

Secetary Carlisle. Certainly. But I do not believe, gentlemen, 
that you can reestablish what was called the wild-cat banking sys- 
tem in the United States any more than you can reestablish the 
conditions out of which the system arose. Those conditions have all 
passed away, and you can not have a bank of issue that could sustain 
itself unless its notes are safe or reasonably safe. The education and 
experience of the people of the United States for the last thirty years 
have carried them a long way beyond the point of keeping in circu- 
lation any depreciated bank paper. 

Mr. Walker. Is not this the theory upon which all examinations of 
banks are now made: That a bank can at any time make its condition 
sound for a day or two or for three or five days; that if notifications 
are sent to the bank beforehand that the examiner is to appear, the 
examination is practically valueless; and that, therefore, the exami- 
ners are required to appear at unexpected times, and calls are made 
upon banks at unexpected times for report as to their condition ; and 
does not your theory contemplate exactly the opposite of that, that of 
allowing the banks to make their own representations to the Depart- 
ment? • 

Secretary Carlisle. You mean with respect to State banks? 

Mr. Walker. Y r es. Does not your wTiole testimony here proceed 
upon exactly the opposite theory to that which I have stated? 

Secretary Carlisle. As to national banks 

Mr. Walker. No; as to the State banks. 



NATIONAL CURRENCY AND BANKING SYSTEM. 39 

Secretary Carlisle. I will come to that. As to the national banks, 
this plan proposes no change whatever in the method of reporting, which 
is required rive times a year, or in the method of examination. The 
only penalty to which the State bank is proposed to be subjected for 
failure to comply with all these conditions and keeping all the time in 
the situation which the law requires is the payment of the 10 per cent 
tax upon its circulation. If that is not sufficient to induce the bank to 
comply with these conditions, then the plan as to the State bank will 
be a failure, and no State bank can issue notes, because it will be closed 
up at once. If it has not complied with the conditions, then it will 
have to pay the 10 per cent tax, and no bank can live under that tax, 
so that there will be no State bank of issue in existence thatdoes not 
comply with these conditions. 

Mr. Walker. Mr. Secretary, that does not reach the point at all, 
because that is in the line of the banks' declarations, assuming that they 
are honest and fair and wise and prudent. It assumes all those things. 
Now, the theory is, as I have said, that the national banks all need 
investigation, and they need investigation at times and occasions when 
they do not expect it. They are under constant temptation to increase 
their receipts, to enlarge their dividends, by practices that are not safe. 
That is the ground upon which irregular and unexpected visitations are 
made, and evidence procured by outside x>arties, namely, examiners, or 
anyone who may be enrployed. Your theory proceeds in exactly the 
opposite direction, that the banks are to report to you their condition, 
and that this condition is permanent and continuous, and I submit that 
it would take about as large a force, and investigation at unexpected 
times,' to find out whether the bank has complied with your conditions. 
We know something about customhouse oaths, and so we may know 
something about bankers' oaths. 

Secretary Carlisle. Instead of assuming that all of the State 
banks, as a fundamental proposition upon which this plan is based, 
will be honest and faithful in the discharge of their duties under the 
law. you may assume just the contrary; you may assume that they will 
all be dishonest and unfaithful, and if so their circulation will be taxed 
out of existence. 

Mr. Walker. Then after the horse is stolen we will lock the stable 
door? 

Mr. Hall. In answer to the question asked you by Mr. Walker in 
regard to the importance of having a careful guardianship over these 
banks. I want to know whether, referring to sections 19 and 20 of 
the act approved February 8, 1875, touching the issue of notes and 
putting the 10 per cent taxation on them — and it was in that act that 
the old sections were incorporated — there is not a provision iu those 
sections that the 10 per cent tax applies not only to the issuance of 
notes, but to every time notes are paid out, so that the tax of 10 per 
cent applies to every time notes are paid out. 

Secretary Carlisle. It applies if the note is paid out by the bank 
of issue, or by any other bank, or by any individual. 

Mr. Hall. Now, would not that make every other bank and every 
other individual especially and personally interested in seeing that the 
bank of issue had complied with the conditions precedent that exempted 
it, and would not that tend to create a constant surveillance over the 
bank which would be better in its effect even than the official examina- 
tion of a national bank? 

Secretary Carlisle. That is what I said a few moments ago; that 
no bank or individual will take that note unless he is satisfied that it 



40 NATIONAL CURRENCY AND BANKING SYSTEM. 

is a good note and that the bank issuing it has complied with the 
law. 

Mr. Brosius. How long, under your plan, would a State bank issue 
circulation before being required to exhibit evidence to the Treasury 
Department that it has complied with the conditions specified in your 
plan? 

Secretary Carlisle. I believe the 10 per cent taxation upon the 
issues of State bank circulation is not made payable semiannually, as 
it is in the case of a national bank. 

Mr. Brosius. It is made payable annually. 

Secretary Carlisle. Then a State bank could go on issuing notes 
until the time came for paying the tax. 

Mr. Brosius. Under your plan a State bank could continue issuing 
its own notes for a period of one year before the Treasury Department 
would have any right to call upon it for any exhibition of its right to 
do so. 

Mr. Hall. They can do that now. 

Secretary Carlisle. They can do that now just as well. 

Mr. Johnson, of Indiana. In response to a question asked you awhile 
ago, you said the time had come when people could not be induced to 
take bad money. I suppose you meant knowingly induced to take bad 
money. Is it not true that under any system of banking that can be 
devised money might be taken by people under a misapprehension, 
thinking it to be good, when it should afterwards turn out to be bad in 
their hands'? 

Secretary Carlisle. Oh, yes. What I intended to express was this : 
That the people would inform themselves before taking the notes; in 
other words, that if a State bank should be established in your town, 
for instance, the people of your town, of course, would know something 
about its condition, and they would not take its notes unless they were 
reasonably safe, because there are plenty of other notes to be had; nor 
would they make deposits in that bank unless the bank were reason- 
ably safe. There are are national banks all over the country whose notes 
are now in circulation. But thirty to fifty years ago, when large parts 
of the South and West were comparatively unsettled, when they had 
no banking facilities, no easy and quick communication with financial 
centers, no easy methods of making exchanges, they had to have a cur- 
rency of some kind, and they resorted to almost everything that looked 
like a bank bill, and banked upon mortgages upon real estate, and 
various kinds of securities. But I am satisfied that nothing of that sort 
can be done now. 

Mr. Johnson, of Indiana. While I might be satisfied with a bank in 
my own State, I might want to pass some of those bills to somebody 
living outside of my State. 

Secretary Carlisle.. All those arguments are legitimate and fair, 
Mr. Johnson, but they apply to the national banks just as well as to 
the State banks. My opinion is that the State-bank note, issued under 
those conditions, will be a good note. 

Mr. Cobb, of Alabama. Is not your proposed plan unfriendly to the 
State banks in this: That the conditions are so stringent that they can 
not circulate their notes? 

Secretary Carlisle. I do not know that it is unfriendly to State 
banks. 

Mr. Cobb, of Alabama. In this respect: That the conditions are so 
stringent as to make every individual who takes a circulating note of 
one of those banks, so highly responsible, that every intelligent citizen 
would be afraid to take hold of a State-bank note. 



NATIONAL CURRENCY AND BANKING SYSTEM. 41 

Secretary Carlisle. That is what I said a few moments ago. I 
thought that was one of the guarantees that only good notes would 
circulate. 

Mr. Cobb, of Alabama. Is it not a guarantee that you could not, under 
your plan, have State banking at all'? 

Secretary Carlisle. I do not think so. I think that if a State bank 
complies with the conditions imposed the people would take notes if 
they needed them. I confess, Judge Cobb, that I do not attach the 
same importance to this State-bank provision that perhaps some 
other gentlemen do. I do not know to what extent it would be utilized, 
even if it should be adopted. But still there seems to be a demand in 
some parts of the country for such a system, and I am willing to ac- 
cede to that demand. 

Mr. Cobb, of Alabama. I would like to have the plan more liberal, 
because I am in favor of State-bank money, and the point I make is 
that under your plan it is impossible to have any State-bank currency. 

Secretary Carlisle. You can, if you have a good currency, I think. 

Mr. Cobb, of Alabama. How can any individual citizen know that it 
is good currency, so that he may know he is escaping the penalty of 
the law in circulating it? 

Secretary Carlisle. He has the assurance that the bank would not 
undertake to issue notes under this system, subject to the 10 per cent 
taxation, without complying with the conditions of the law; that the 
bank could not afford to put itself in that attitude. 

Mr. Cobb, of Alabama. And that is all the guarantee he has, is it 
not? 

Secretary Carlisle. No; he has the additional guarantee which 
every man has who takes a bank note. He has some faith, of course, 
in. the people who conduct the bank, the general commercial credit and 
standing of the institution itself. 

The Chairman. In order to avoid the objection, Mr. Secretary, that 
Mr. Cobb, of Alabama, has suggested, of discrimination against the 
State banks, would it be proper to remit the taxation upon such banks 
as complied completely with the provisions which you propose to apply 
to the national banks, and would not such provision secure a greater 
uniformity than is possible under the system which you propose? 

Secretary Carlisle. Do you mean, Mr, Chairman, to make a pro- 
vision that they shall keep on deposit, say, with some official of the 
Government, or keep in their own hands, 30 per cent of their circula- 
tion and also a safety fund? 

The Chairman. I mean, is there any objection to applying to the 
State banks, as a condition of being relieved from the taxation, the 
same provisions precisely, mutatis mutandis, which you apply to the 
national banks'? 

Secretary Carlisle. Then I see no use whatever of providing for a 
State banking system; it would be all a national banking system then. 

The Chairman. If you apply one condition, you may apply that as 
well as the other? 

Secretary Carlisle. If you undertake to impose conditions upon 
them in order to secure exemption from taxation, of course you can 
impose such conditions as you please. But if you are to impose upon 
them the same conditions as are imposed upon national banks, then 
of course we shall have to take supervision of them, because we now 
exercise supervision of the national banks. 

Mr. Johnson, of Indiana. You dropped a remark a bit ago that gave 
me, as an individual, some encouragement, for I like very much some 



42 NATIONAL CURRENCY AND BANKING SYSTEM. 

of the general features of your plan, though there is one element that 
I do not like. If it were possible to get through this Congress 
a bill revising our banking and currency system so that the Govern- 
ment may be divorced from banking, and retire all the Government 
issues, and dispense with the bond security, which prevent elasticity, 
and secure an elastic system of currency in order to meet the needs of 
the people, why is it necessary to insist upon a revival of the mistakes 
of the State banking system! Do you consider the State banking sys- 
tem as absolutely essential now to currency reform? 

Secretary Carlisle. I have jnst said that I attach less importance 
to the State banking system than many other gentlemen do, but that 
there seems to be a demand in certain parts of the country for State 
banks in order to supply them with the currency for local use at certain 
seasons of the year, issued upon some plan which would give it a 
sufficient amount of elasticity to enable the banks to put it out when 
it is wanted, and to take it in when it is not needed; and I said that 
in deference to that sentiment I had incorporated that feature into this 
plan. 

I believe, in the first place — and I am giving you now only my indi- 
vidual opinion, I aui not criticising the decision of any judicial tribunal — • 
that the imposition of this tax upon State banks by the United States 
Government, for the purpose for which it was imposed, was an uncon- 
stitutional exercise of power. But the courts have said that it was 
constitutional. Therefore, my position, as I say, would lead me logi- 
cally to the repeal of the whole law on that subject. That, however, 
can not be done, and, in deference to the demand which seems to exist 
in many parts of the country for a State banking system, this has been 
incorporated here upon such conditions as, in my opinion, would secure 
a sound circulating medium. That is my position. 

Mr. Johnson, of Indiana. The point I make is this, Mr. Secretary, 
Will not your plan, with the State-bank system eliminated, give to 
the people of sparsely settled districts the elastic currency which you 
say is needed and reasonably me 't all their requirements? 

Secretary Carlisle. I think it would. But at the same time, a part 
of this plan, and, in my opinion, the most valuable part of it, is that 
provision which authorizes the Secretary of the Treasury to use from 
time to time, in his discretion, the surplus revenue to enable him to 
retire the old legal-tender notes, the Treasury notes of 1890, to the extent 
of 70 per cent upon the amount of notes issued under this system. You 
understand that when a national bank takes out circulation under this 
system, or when a State bank takes out circulation under this system, 
it will increase the circulating medium nearly 70 per cent, because it is 
required to lock up 30 per cent. 

In order to make a wider field for the exercise of this authority to 
redeem and cancel the old United States notes and the Treasury notes 
the State-bank circulation is as useful as the national-bank circulation, 
because this plan provides that the Secretary of the Treasury may 
retire these notes to the extent of 70 per cent of the national-bank cir- 
uclation taken, out or 70 per cent of the State-bank circulation taken 
out. In other words, it affords to the Secretary of the Treasury an 
opportunity to relieve the Government from the current redemption of 
gold paper to a larger extent than he would without the State banking 
system. 

The national banks to day have about $672,000,000 capital, and the 
State banks have enough more to make about $ 1,000,000,000. Of course 
no one can tell in advance to what extent notes will be taken out under 



NATIONAL CURRENCY AND BANKING SYSTEM. 43 

this system, but if notes were taken out to tlie full capacity of the banks, 
State and national, it would require the deposit of about $125,000,000 
of these notes, to say nothing of wliac might go into the safety fund. 

Mr. Johnson, of Ohio. Can not the undivided profits of the national 
banks be at once converted into capital? We have $300,000,000 under 
that head. 

Secretary Carlisle. Yes; that could be done, but I am considering 
the capital stock alone. That would dispose of $225,000,000 of out- 
standing notes, provided the whole amount were taken, which of course 
it will not be for a long time. 

STATEMENT BY SECRETARY CARLISLE— Resumed. 

Secretary Carlisle. Mr. Chairman, I apologize to the committee for 
being late. I was compelled to go to my office, and found it impossi- 
ble to get away in order to be here at the time agreed upon yesterdays. 
As a great many questions are being asked in relation to the Baltimore 
plan, 1 think it would be very well to have it incorporated in my 
statement. 

The Chairman. It has been already ordered to be incorporated in 
the proceedings of the committee. 

Secretary Carlisle. In accordance with the request of the com- 
mittee made yesterday, I have prepared a bjll which, with the permis- 
sion of the committee, 1 will read, if it is thought desirable for me to 
do so. 

The Chairman. Please to do so. 

Secretary Carlisle read the bill prepared by him, as follows: 

AX ACT to amend the laws relating to national-banking associations, to exempt the notes of State 
banks from taxation upon certain conditions, and for other purposes^ 

Be it enacted by the Senate and House of Representatives of the United State* of America 
in Congress assembled, That all acts and parts of acts which require or authorize 
the deposit of United States bonds to secure circulating notes issued by national 
banking associations be, and the same are hereby, repealed, andsueh notes hereafter 
prepated shall not contain the statement that they are so secured. 

Sec. 2. That any national-banking association organized as now provided by law, 
and any national-banking association hereafter organized, may take out circulating 
notes to an amount not exceeding 75 per cent of its paid-up and unimpaired capital 
upon depositing with the Treasurer of the United States United States legal-tender 
notes, including Treasury notes issued under the act approved July 14, 1890, entitled 
"An act directing the purchase of silver bullion and the issue of Treasury notes 
thereon, and for other purposes, " as a guaranty fund equal to 30 per cent of the cir- 
culating notes applied for. The association making such deposit shall be entitled 
to receive from the Comptroller of the Currency circulating notes in denominations 
of $10 and multiples thereof in blank, registered and countersigned, as provided by 
law, and all such notes, together with the circulating notes of national -banking 
associations now outstanding, shall constitute, and are hereby declared to be, a first 
lien upon all the assets of the association issuing the same. All circulating notes 
hereaftei furnished to national-banking associations shall be uniform in design, but 
any association desiring to redeem its circulating notes in gold may have them made 
payable in that coin; and the Secretary of the Treasury is hereby authorized and 
directed to have prepared and keep on hand ready for delivery on application a 
reserve of blank notes for each national-banking association having circulation, but 
such reserve for each bank shall at no time be in excess of the difference between 
the amount of its notes then outstanding and the total amount which it is by this 
act authorized to receive. 

Sec. 3. That in lien of all existing taxes each national-banking association shall 
pay to theTre; surer or the United States, in the months of January and July each 
year, a duty of one fourth of 1 per centum for each half year upon the average 
amount of its notes in circulation, and in computing such average all notes issued 
by such association and not actually retired from circulation in the manner herein- 
after provided shall be included. 

Sec. 4. That each national-banking association shall redeem its notes at par on 



44 NATIONAL CURRENCY AND BANKING SYSTEM. 

presentation at its own office or at its own office and at such agencies as may be 
designated by it for that purpose, and whenever such association desires to retire 
the whole or any part of its circulation, the notes to be retired shall be forwarded 
to the Comptroller of the Currency for cancellation, and thereupon 30 per centum of 
the amount of such canceled notes shall be returned to the association. Defaced and 
mutilated notes, and notes otherwise uuht for circulation, which have been redeemed 
by any association, may be returned to the Comptroller of the Currency for destruc- 
tion and reissue, as now provided by law. 

Sec. 5. That in order to provide a safety fund for the prompt redemption of the 
circulating notes of failed national banking associations, each such association now 
organized, or hereafter organized, shall pay to the Treasurer of the United States, 
in the months of January and July in each year, a tax of one-fourth of 1 per centum 
for each half year upon the average amount of its circulating notes outstanding, to 
be computed as hereinbefore provided, until the said fund amounts to a sum equal to 
5 per centum upon the total amount of national-bank notes outstanding, and there- 
after said tax shall cease. Each association hereafter organized, and each association 
applying for additional circulation, shall pay its pro rata share into the said fund 
before receiving notes ; but an association retiring or reducing its circulation shall 
not be entitled to withdraw any part of said fund. When a national banking asso- 
ciation becomes insolvent, its guarantee fund held on deposit shall be transferred to 
the safety fund herein provided for and applied to the redemption of its outstanding 
notes, an J in case the said last-mentioned fund should at any time be impaired by 
the redemptions of the notes of failed national banks, and the immediately available 
assets of said banks are not sufficient to reimburse it, said fund shall be at once 
restored by pro rata assessments upon all the other associations according to the 
amount of their outstanding circulation; and the associations so assessed shall have 
a rirst lien upon the assets of each failed bank for the amount properly chargeable 
to such bank on account of the redemption of its circulation. 

Sec. 6. That the Secretary of the Treasury may from time to time invest any 
money belonging to the safety fund in United States bonds, and the bonds so pur- 
chased, and the interest accruing thereon, shall be held as part of the said fund. 
Such bonds may be sold when necessary and the proceeds used for the redemption of 
the circulating notes of failed national banks. 

Sec. 7. That every national banking association heretofore organized and having 
bonds on deposit to secure circulation shall, on or before the first day of July, 1895, 
withdraw such bonds and deposit with the Treasurer of the United States a guarantee 
fund consisting of United States legal- tender notes, including the Treasury notes 
issued under the act of July 14, 1890, equal to 30 per cent of its outstanding circu- 
lation at the time of such withdrawal and deposit, and all laws and parts of laws 
requiring such association to deposit, or to keep on deposit, with the Treasurer of 
the United States bonds oi the United States for any purpose other than as security 
for public moneys shall be, and are hereby, repealed from and after the said date. 

Sec. 8. That sections 9 and 12 of the act approved July 12, 1882, entitled "An act 
to enable national banking associations to extend their corporate existence, and for 
other purposes," aud section 31 of the act approved June 3, 1864, entitled "An 
act to provide a national currency secured by a pledge of United States bonds, and 
to provide for the circulation and redemption thereof/' and all acts and parts of acts 
supplemental thereto or amendatory thereof be. and the same are hereby, repealed. 

Sec. 9. That the Secretary of the Treasury may, in his discretion, use from time 
to time any surplus revenue of the United States in the redemption and retirement 
of United States legal-tender notes, but the amount of such notes retired shall not 
in the aggregate exceed an amount equal to 70 per cent of the additional circulation 
takeu out by national banks and State banks under the provisions of this act; and 
hereafter no United States notes, or Treasury notes authorized by the act of July 14, 
1890, entitled " An act directing the purchase of silver bullion and the issue of 
Treasury notes thereon, and for other purposes,'' of a less denomination than $10 
shall be issued, and as rapidly as such notes of denomination less than $10 shall be 
received into the Treasury they shall be canceled and an equal amount of notes of like 
character, but in denominations of $10 or multiplies therof, shall be issued in their 
places; but nothing in this act shall be so construed as to repeal, or in any manner 
affect, the second section of the said act of July 14, 1890. 

Sec. 10. That the use of circulating notes issued by a banking corporation, duly 
organized under the laws of any State, and which transacts no other than a banking 
business, shall be exempt from taxation under the laws of the United States, when 
it is shown to the satisfaction of the Secretary of the Treasury and Comptroller of 
the Currency — 

(1) That such bank has at no time had outstanding its circulating notes in excess 
of 75 per centum of its paid-up and unimpaired capital. 

(2) That its stockholders are individually liable for the redemption of its circulat- 
ing notes to the full extent of their ownership of stock; but this shall not be required 



NATIONAL CURRENCY AND BANKING SYSTEM. 45 

in the case of persons holding stock, as executors, administrators, guardians, or 
trustees, if the assets and 1nnds in their hands are liable in like manner and to the 
same extent as the testator, intestate, ward, or person interested in such funds would 
he if living and competent to act and hold the stock in his own name. 

(3) That the circulating notes coustitute by law a first lien upon all the assets of 
the bank. 

(4) That the bank has at all times kept on deposit, with an official of the State 
authorized by law to receive and hold the same, a guarantee fund in United States 
legal-tender notes, including Treasury notes of 1890, equal to 30 per centum of its 
outstanding circulating notes; and 

(5) That it has promptly redeemed its notes at par on demand at its principal 
office, or at one or more of its branch offices, if it has branches. 

Sec. 11. That the Secretary of the Treasury may, under proper rules and regula- 
tions to be established by him, permit State banks to procure and use in the prepara- 
tion of their notes the distinctive paper used in printing United States securities, 
but no State bank shall print or engrave its notes in similitude of a United States 
note, or certificate, or national- bank note. 

It will be observed that section 8 of this bill repeals sections 9 and 
12 of the act of JuTy 12, 1882, which I had better read in order that 
they may go into the statement. Section 9 is: 

That any national banking association now organized, or hereafter organized, 
desiring to withdraw its circulating notes, upon a deposit of lawful money with the 
Treasurer of the United States, as provided in section four of the act of June 
twentieth, eighteen hundred and seventy-four, entitled "An act fixing the amount 
of United States notes, providing for a redistribution of national-bank currency, 
and for other purposes," or as provided in this act, is authorized to deposit lawful 
money and withdraw a proportionate amount of the bonds held as security for its 
circulating notes in the order of such deposits; and no national bank which makes 
any deposit of lawful money in order to withdraw its circulating notes shall be 
entitled to receive any increase of its circulation for the period of six months from 
the time it made such deposit of lawful money for the purpose aforesaid: Provided, 
That not more than three millions of dollars of lawful money shall be deposited 
during any calendar month for this purpose: And provided further, That the provi- 
sions of this section shall not apply to bonds called for redemption by the Secretary 
of the Treasury, nor to the withdrawal of circulating notes in consequence thereof, 

It might not be absolutely necessary to repeal that section of the 
statute if the plan now proposed should be adopted, because the pro- 
posed plan dispenses entirely with the deposit of bonds and with the 
payment of lawful inonej^ to redeem circulation. But still the spirit 
of the section is that the national banks shall not redeem in the aggre- 
gate more than $3,000,000 of their circulation per month, and that 
having retired any part of their circulation they shall not be per- 
mitted to increase it again for six months. Therefore I have included 
in the proposed bill a provision to repeal that section. 

Section 12 is — and about this there will be room for considerable dif- 
ference of opinion — 

That the Secretary of the Treasury is authorized and directed to receive deposits 
of gold coin with the Treasurer or assistant treasurers of the United States, in sums 
not less than twenty dollars, and to issue certificates therefor in denominations of 
not less than twenty dollars each, corresponding with the denominations of United 
States notes. The coin deposited for or representing the certificates of deposits 
shall be retained in the Treasury for the payment of the same on demand. . Said 
certificates shall be receivable for customs, taxes, and all public dues, and when so 
received may be reissued ; and such certificates, as also silver certificates, when held 
by any national banking association, shall be counted as part of its lawful reserve; 
and no national banking association shall be a member of any clearing-house in 
which such certificates .shall not be receivable in the settlement of clearing-house 
balances: Provided, That the Secretary of the Treasury shall suspend the issue of 
such gold certificates whenever the amount of gold coin and gold bullion in the 
Treasury reserved for the redemption of United States notes falls below one hundred 
millions of dollars: and the provisions of section fifty-two hundred and seven of the. 
Revised Statutes shall be applicable to the certificates herein authorized and directed 
to be' issued. 

Section 5207 of the Revised Statutes, here referred to, prohibits any 



46 NATIONAL CURRENCY AND BANKING SYSTEM. 

national bank from depositing certain kinds of Government securities 
as collateral for obligations incurred by them, and that provision is 
inade applicable by this section to the gold certificates. There are 
now outstanding about 61,000,000 of gold certificates; or, rather, there 
are in existence about 01,000,000 of gold certificates, some 2,500,000 of 
which are held in the Treasury, the remainder being in circulation or 
held by the banks as part of their reserve. 

My own opinion is that it is not good policy for the Government 
to establish a warehouse for the holding of gold, and issuing certifi- 
cates against it to circulate, because I believe (looking at it purely 
from a Treasury Department standpoint) that this gold, or much the 
larger part of it, would come into the Treasury and stay there if certif- 
icates were not issued upon it, because the banks and the trust com- 
panies and other institutions (especially the banks) which desire circu- 
lation can not use their gold to circulate. The gold coin itself will 
not circulate to any considerable extent, because it is cumbersome to 
handle and the banks would not keep it in their vaults at their own 
risk. Therefore, if the gold certificates were not issued, this gold would 
come into the Treasury and the legal-tender notes or the Treasury notes 
of 1890 would be taken out and put into circulation or would be held by 
the banks as part of their reserve, just as they now hold the gold 
certificates. 

The latter part of this section seems to have no connection whatever 
with the first part. It provides that the issue of gold certificates shall 
cease whenever the gold reserve is reduced to $100,000,000; and yet the 
section does not require the Secretary of the Treasury to issue gold cer- 
tificates except when the gold is brought by the owners and deposited. 
There seems to be an incongruity in the section in that respect. 

But, as I have said, the repeal of that section is not an essential 
part of a plan of currency reform, and the question as to whether 
it will be or not good policy to deprive the Secretary of the Treas- 
ury of the authority to issue these certificates, or whether to take off 
that mandatory provision which compels him to issue them, is one 
about which there may be a difference of opinion. My own view of it 
(looking at it entirely from an official standpoint) is that it would be 
beneficial to the Government not to issue these certificates, but to 
compel the persons who hold the gold to keep it at their own risk or to 
put it into the Treasury of the United States, and get out currency in 
lieu of it. 

The next repeal is that of section 31 of the original banking act, which 
lias been amended in some- respects. It is the section which requires 
<each national bank in certain cities to keep a fixed reserve equal to 25 
per cent of the amount of their deposits and other capital stock, and 
requires national banking associations in other cities to keep a fixed 
reserve of 15 per cent on their deposits and capital stock. That part 
<of the section which requires the computation to be made on the circu- 
lation of the banks, as well as on the deposits, has been repealed, so that 
ras the law now stands these banks are required to keep this reserve on 
their deposits alone. I have already, in my official report and in my 
statement made to the committee yesterday, given the reasons which 
induce me to recommend the repeal of those provisions, and I suppose 
I need not go into it now further, unless some member of the committee 
desires to interrogate me on the subject. 

If will be seen, Mr. Chairman, that among the conditions imposed 

*apon State banks, in order to exempt them from taxation under the 

.-aws of the United States, they are required to keep on deposit with 



NATIONAL CURRENCY AND BANKING SYSTEM. 47 

an official of the State authorized by law to reserve and hold the same 
a guaranty fund in United States legal-tender notes (including the 
Treasury notes of 1890) equal to 30 per cent on their outstanding circu- 
lation. Some criticism was made upon the proposed plan as printed 
in the report of the Secretary of the Treasury, on the ground that it 
made no provision for the custody of that 30 per cent, and a clause has 
been inserted in the bill which I have submitted to the committee to- 
day to meet that objection. 

I think that it is met fully and fairly, because it deprives the State 
banks of all opportunity or power to touch this reserve except by retir- 
ing their circulation. Whenever a State bank retires its circulation or 
any part of it, a proper proportion of the guaranty fund will be returned 
to it by the State official. 

The Chairman. Are not those conditions on which a State bank may 
issue circulating notes substantially the same as are imposed upon 
national banks? 

Secretary Carlisle. They are almost precisely the same so far as 
regards the guaranty fund, but there is no requirement here that the 
State banks shall keep a safety fund of 5 per cent. The safety of the 
State-bank notes is made to depend on the assets of the bank, on its 
commercial credit, on the individual liability of its stock-holders, and 
on the fact that it must deposit 30 per cent to secure its circulation. 
Its notes are a first lien upon its assets, and, as I said yesterday, if this 
does not make a reasonably safe note I am not able to devise a law that 
would do so. 

Mr. Cox. One of the points to which I desired to call your attention 
in making a State officer the holder of this 30 per cent guarantee fund 
has been remedied. .Now, I desire to call your attention to another 
fact, which is as to the liability clause for the redemption of the cir- 
culating notes. If that fact appears in the charter of the bank it will 
be conclusive on that point? 

Secretary Carlisle. Of course. 

Mr. Cox. So 1 ask you if, in order to make it a little more definite, it 
would not be permissible that the stockholders' liability should appear 
in the charter of the bank. The fact that the bank has at all times 
kept its guarantee fund would appear from the statement of the officer 
who holds it. But ought not that provision also to appear in the 
charter of the bank? 

Secretary Carlisle. What provision? 

Mr. Cox. The provision which requires the 30 per cent guarantee 
fund to be deposited. 

Secretary Carlisle. The proposed bill says that the State officer 
shall be authorized by law to hold this deposit. I assume that every 
State which desires to have State-bank circulation will have a State- 
bank commissioner or some other officer authorized by law, so that it 
will not be necessary that the provision should appear in the charter 
of every State bank. 

Mr. Cox. And so with other facts as to the liability clause. 

Secretary Carlisle. The State may have a general law, and there- 
fore it will not be necessary that it should appear in the charter of the 
bank. 

Mr. Brosius. You have said, Mr. Secretary, that your plan, as 
explained, will secure a reasonably safe State-bank note. But as to 
that portion of the State-bank circulation which is not covered by the 
" safety " and u guarantee " fund? 



48 NATIONAL CURRENCY AND BANKING SYSTEM. 

Secretary Carlisle. There is no safety fund in the case of State 
banks. 

Mr. Brosius. I speak of the 30 per cent fund and the 5 per cent 
fund. That portion of the State-bank circulation not covered by those 
funds must depend for its redemption on the assets of the bank. That 
means, does it not, that it depends entirely on the solvency of the 
bank's creditors'? 

Secretary Carlisle. It depends, in the first place, on the assets of 
the bank, and in the second place on the individual liability of each 
stockholder of the bank, and in the third place on the deposit of the 
30 per cent guarantee fund. 

Mr. Brosius. I am excluding all of the notes of the State bank 
except the additional 70 j>er cent. That depends for its security on 
the assets of the bank. 

Secretary Carlisle. And on the individual liability of the stock- 
holders. 

Mr. Brosius. It depends upon the solvency of the bank's debtors 
and upon the solvency of the stockholders. Is it not possible, in that 
view of the case, that a bank might be so badly broken that its notes 
will not be redeemed at all? 

Secretary Carlisle. All things are possible. I will not undertake 
to say what is not possible. 

Mr. Brosius. You admit that that is possible 1 ? 

Secretary Carlisle. Oh, certainly. 

Mr. Brosius. That possibility is in the nature of a residue of risk, 
and after all the security is attained which is attainable. My inquiry 
is, Would it not be better, under your bill, to put that residue of risk on 
the Government of the United States rather than on the note holders? 

Secretary Carlisle. Better for whom"? 

Mr. Brosius. Better for the people of the United States. 

Secretary Carlisle. I think not. My theory is that the Govern- 
ment of the United States should be disconnected entirely, if possible, 
from the banking business, and should not incur any liability in con- 
nection with that business except to see that it throws such safeguards 
around the issue of bank notes as to make them sound in the hands of 
the people. 

Mr. Brosius. Is that objection of yours a constitutional one or a 
practical one? 

Secretary Carlisle. I think it both constitutional and practical* 
I think that when the Government embarks in a business that belongs 
to private corporations it is going into a business in which it is likely 
to suffer. 

• Mr. Sperry. Your plan provides that no national bank shall issue 
bills of less denomination than ten dollars. Does the same apply to 
the State banks ? 

Secretary Carlisle. ISTo, sir. That is one of the questions about 
which I have, of course, thought very seriously, but it has not been 
incorporated into the bill, and the reason why (which may not be a very 
good one) was that the State-bank notes will probably circulate to a 
larger extent than the national-bank notes among the masses of the peo- 
ple in the locality or region where the State bank is located, and that 
perhaps it would not be wise to undertake to limit them to notes of ten 
dollars and upward. 

Mr. Sperry. Have you made any estimate of the probable profits of 
circulation of national banks under your system? 

Secretary Carlisle. Yes; an estimate was made in the office of the 
Comptroller of the Currency at my request, and although I have not had 



NATIONAL CURRENCY AND BANKING SYSTEM. 49 

an opportunity to review tlie calculation submitted, I assume that 
they have been correctly made. Under the plan proposed a national 
bank having a capital of $100,000 aud being therefore entitled on a 
deposit of 30 per ceut to takeout a circulation of $75,000, would make 
profit, for the first year and for all the years up until the point was 
reached where the safety fund of 5 per cent was complete of $1,972.93. 
The expenses that are charged to the bank are the annual cost of 
redemption of its whole circulation, the taxes, the express charges on 
rhe whole of its circulation, the cost of plates and the agents' fees for 
tedemption. 

Every item of expense has been deducted The net profit on the 
$75,000 of currency for the first year is calculated at $1,972.93, and 
after the first year at $2,722.93. A national bank doing business 
on a deposit of 2 per cent bonds would realize under the present system 
a profit of $134.28 after the same deductions have been made, and a 
national bank issuing circulation of $75,000 on 4 per cent bonds would 
have a profit of $611.50. 

Mr. Walker. At the present price of bonds? 

Secretary Carlisle. Yes, taking everything exactly as it is. If a 
bank is issuing currency on a deposit of 5 per cent bonds, its net profit 
on $75,000 circulation is $559.83; and if it is issuing its circulation on 6 
per cent currency bonds (which are selling at a less premium, but pay 
a higher rate of interest), the profit on a circulation of $75,000 is 
$1,648.17. 

Mr. Warner. At what rate of interest is it assumed that that money 
is loaned? 

Secretary Carlisle. At 6 per cent all the way through. It is well 
known, of course, that the profits of the circulation of a national bank 
constitute a very small item of the total profits of the institution, but 
I had those calculations made simply to show that at least it would not 
be a disadvantage to the banks to take out circulation under this bill. 

Mr. Johnson, of Indiana. Have you made any calculation as to the 
amount to which circulation would be issued under your plan if all the 
banks amenable to it, both national banks and State banks, should take 
out circulation to the full extent of their right to do so? 

Secretary Carlisle. Yes. 

Mr. Johnson, of Indiana. What would be the amount? 

Secretary Carlisle. $750,000,000 including what is now out. From 
that there must be deducted the 30 per cent that will be put up for a 
guarantee fund, which would amount to $225,000,000. That would be 
simply the immediate effect of the taking out of the full percentage 
of circulation by all the national banks and by all the State banks. 
The effect would be to make $750,000,000 less the $225,000,000 which 
would have to be put up as a guarantee fund. 

Mr. Johnson, of Indiana. What amount of United States Treasury 
notes, and of the notes issued under the act of 1890, would be taken 
up in order to guarantee that issue? 

Secretary Carlisle. $225,000,000, to say nothing about the 5 per 
cent safety fund. If the same kind of notes should be put into and 
held in that fund, as of course the Secretary of the Treasury would 
have done if he could, it would add about $3,500,000 more. 

Mr. Johnson, of Indiana. It would still leave a good many green- 
backs out to vex the Government. 

Secretary Carlisle. Certainly, to be redeemed hereafter, because I 
do not think it practicable to secure any legislation now that would 
immediately retire United States notes and Treasury notes. In the 
NAT cur 4 



50 NATIONAL CUREENCY AND BANKING SYSTEM. 

first place, if it were practicable to secure the passage of a law which 
would authorize the Secretary of the Treasury to issue bonds bearing 
a low rate of interest, and use the proceeds for the immediate redemp- 
tion of these notes, the result would be an immediate contraction of the 
currency to the extent of about $498,000,000, unless the national banks 
and the State banks should be allowed to conduct their business at the 
same time under a plan that would induce them to take out the same 
amount of circulation. 

Mr. Johnson, of Indiana. Then your system is only a partial relief 
for the Treasury drainage of gold. 

Secretary Carlisle. That is all that I thought we were able to 
secure. 

Mr. Johnson, of Indiana. The plan of Mr. Eckels, as stated here 
yesterday, provides for taking out less circulation, does it not? 

Secretary Carlisle. No; it provides for taking out circulation up 
to the full extent of the capital stock of each bank. 

Mr Johnson, of Indiana. But it applies only to national banks, not 
to State banks. 

Secretary Carlisle. The State banks and the national banks 
together have a capital stock of about $1,000,000,000. Of this the 
national banks have $672,000,000. Under the plan proposed by the 
Comptroller of the Currency the national banks can take out circula- 
tion to the full amount of their stock, to wit, $672,000,000, but the State 
banks can take out none, I believe. 

• Mr. Johnson, of Indiana. By Mr. Eckels's plan a much larger amount 
of United States notes and of Treasury notes issued under the act of 
1890 would be deposited with the Government than under your plan. 

Secretary Carlisle. Yes. 

Mr. Johnson, of Indiana. And therefore there would be less of them 
out to drain the Treasury of its gold ? 

Secretary Carlisle. If you will allow me, I will state what I under- 
stand Mr. Eckels's plan to be as stated in his report. He proposes that 
national banks shall be allowed to take out circulations to the amount of 
at least 50 per cent of their capital upon their assets or commercial credit, 
but to secure the redemption of the notes of failed banks, there shall be 
raised by taxation a safety fund equal to 5 per cent upon the outstand- 
ing circulation of all the banks. But if the banks take out this circula- 
tion, then they are to be compelled to deposit with the Treasurer, United 
States legal tender and treasury notes, to the full amount of the differ- 
ence between this form of circulation and the total amount of their 
capital stock; and upon this deposit they are also to have notes equal 
to the amount of the deposit, thus compelling the banks to take out 
circulation equal to the whole amount of their capital, or take out none. 
I do not wish to criticise Mr. Eckels's plan ; but, in my judgment, an 
obvious and fatal objection to it is that it requires national banks to 
take out and keep in circulation two different kinds of notes, one based 
on the deposit of national money, and the other based upon the com- 
mercial credit of the bank. 

Mr. Johnson, of Indiana. One great object of everyone of these bills 
is to save the Government from the necessity of current redemption of 
its paper whereby the Treasury is constantly subject to a drain. Is it 
not a fact that under Mr. Eckels's system the saving would be much 
greater than under yours, for the reason that he requires the hypothe- 
cating, so to speak, of a larger amount of Government paper than your 
plan requires? 

Secretary Carlisle. It would; but I do not think that the national 
banks would take out circulation if they could avoid it. 



NATIONAL CURRENCY AND BANKING SYSTEM. 51 

Mr. Johnson, of Indiana. Why should a national law of banking and 
currency make any different conditions for the issuing of currency by 
State banks than by national banks'? 

Secretary Carlisle. I do not see the necessity of a national law 
making any conditions at all about State banks, except as to taxation. 

Mr. Johnson, of Indiana. You put that upon constitutional grounds % 

Secretary Carlisle. Upon that and upon grounds of policy as well. 
This bill does not require a State bank to comply with any conditions 
whatever. It leaves the State banks in the condition of complying with 
them, if they choose, or of paying the tax on their circulation if they 
do not comply with them. The tax is already on their notes, and my 
proposition simply is that if a State bank desires to exempt itself from 
the payment of a tax which the Supreme Court of the United States has 
held to be a constitutional tax, it shall do so by complying with cer- 
tain conditions. In other words, I recognize in that statute of the 
United States which puts a tax upon the issue of Stale banks no valid- 
ity at all except as a revenue measure. I personally question the right 
of the Congress of the United States to prohibit directly or indirectly 
the issue of notes of a State bank when it is authorized to issue them by 
the law of the State. Therefore, if Congress has any power at all in 
the premises it is a revenue power — a power to raise money by taxation, 
and Congress may modify the exercise of that power in any way it 
pleases. 

Mr. Johnson, of Indiana. But do not the provisions of j^our hill 
make it absolutely impossible for a State bank to become a bank of 
issue unless it complies with certain conditions? 

Secretary Carlisle. Under the law now it is prohibited entirely 
unless it pays the tax. 

Mr. Johnson, of Iudiana. While technically you may say that the 
Government does not undertake to prevent the issue of currency by 
State banks, does it not, as a matter of fact, do so ? 

Secretary Carlisle. It retains to a limited extent the same restric- 
tion which the law has already imposed on State banks, and it simply 
provides that these banks may exempt themselves from those restric- 
tions or limitations (in the form of a tax) by complying with certain 
conditions. So in the taxation of beer or distilled spirits or tobacco, 
Congress may modify the law so as to provide that in case they are 
manufactured in a certain way they shall not be subject to the tax. 

Mr. Johnson, of Indiana. Do you think that that is not a govern- 
mental restriction % 

Secretary Carlisle. It is simply a modification of the authority 
already exercised by the Government over State banks. The effect is 
that if the bank does not comply with the conditions the present law 
would be enforced against it. 

Mr. Cobb, of Alabama. And you are willing to retain that modified 
control of State banks simply because you can not get rid of the con- 
trol altogether'? 

Secretary Carlisle. As a mere question of right, I would be in favor 
of repealing the tax upon the notes of State banks. I do not assert 
that it would be good financial policy to do so under the present circum- 
stances. It might not be. But logically my position would lead me to 
advocate the unconditional repeal of the tax upon State-bank circulation. 
It can not be done, in my opinion, and perhaps it might not be good 
financial policy to do it under existing circumstances; and therefore I 
have proposed simply that the act shall be so modified that the State 
banks can issue a sound and safe note, and exempt itself from taxation. 

Mr. Hall. The questions asked you by my colleague from Pennsyl- 



52 NATIONAL CURRENCY AND BANKING SYSTEM. 

vania (Mr. Brosius) were based upon the idea that there was a hazard 
as to this currency issued by the national banks. I ask yon if the 5 
per cent safety fund does not always protect the issue of all money by 
national banks under your plan? 

Secretary Carlisle. It will, as long as there is any solvent national 
bank in existence. 

Mr. Hall. Therefore, unless there is a total failure of all the national 
banks in the United States, the national banks are safe % 

Secretary Carlisle. Yes; or substantially that. So many of them 
might fail that the surviving banks would not be able to redeem the 
outstanding circulation. 

Mr. Hall. In section 10 of your proposed bill, you speak of the lia- 
bility of stockholders in State institutions. You mean by that what 
we in the West call double liability? 

Secretary Carlisle. Yes; it is a liability for the redemption of the 
notes to the full extent of the stock held. 

Mr. Hall. In the first organization of the bank the stockholders 
may pay in the full amount of stock, and yet they will be liable for 
as much more of the capital stock as if they had never paid in any of it 
at all. 

Secretary Carlisle. Yes; and that is dedicated first to the redemp- 
tion of the notes as well as all other assets of the bank. 

Mr. Hall. I would like to hear you upon a question mentioned by 
Mr. White a moment ago. I understood him to state that the elas- 
ticity of the currency was secured under the Baltimore plan, but that 
under your plan there would be practically no elasticity at all. I should 
like to know what difference of elasticity exists between the two plans. 

Secretary Carlisle. There is no difference in the elasticity; that 
is to say, there is no difference between the amount of circulation to be 
taken under the Baltimore plan and the amount to be taken out under 
the plan now proposed. But there is a difference as to the conditions 
under which it could be taken out. Under the Baltimore plan a bank 
is authorized to take out on the security of a 5 per cent safety-fund, 
with the ultimate liability of the Government behind it, a circulation 
to the amount of 50 per cent of its capital. Then it will be authorized 
to take out an additional amount of circulation equal to 25 per cent of 
its capital stock paid up and unimpaired, making a total circulation of 
75 per cent of its capital stock, just as is proposed in this plan. But 
in order to get that 25 per cent additional, or emergency circulation 
as the Baltimore plan denominates it, the bank is required to pay a heavy 
rate of taxation. The plan does not state what the rate is. So, I repeat, 
there is no difference between the amount of circulation that can be 
taken out under the two plans, but the conditions are different. 

Under the Baltimore plan if a stringency occurs in the financial 
affairs of the country, and the banks desire to add 25 per cent to the 
50 per cent circulation they already have, they must pay some heavy 
rate of taxation, which, of course, would raise the rate of interest not 
only on that 25 per cent of circulation, but on the whole volume of cur- 
rency. Now, I suppose that it is good banking when a stringency occurs 
in the community to increase the rate of discount to a certain extent, 
because the effect of that is to prevent the people who are really not in 
distress from borrowing money, and leaves it to be borrowed by those 
who are really in distress, and who need it in their business. But I do 
not think it good policy to require a bank by law to charge a high rate of 
interest on its currency. I think that should be left to the bank itself. 
This provision in the Baltimore plan, as I understand it, is taken from 
or suggested by the provisions of law in regard to the Bank of the 



NATIONAL CURRENCY AND BANKING SYSTEM. 53 

Empire in Germany. I am not aware of the fact (although it may be 
so) that that bank has ever availed itself of that provision. 

The Chairman. It has on several occasions. 

Secretary Carlisle. Perhaps it has. I have not read anything on the 
subject for a good while. Mr. White thought that the present difficulty 
arises more from the fact that there has been a deficiency in the reve- 
nue than from any other cause. I am not able to agree with Mr. White 
about that. It is true that we did not have this trouble when we had 
a surplus revenue, because we were then able to redeem the United 
States notes and the Treasury notes in gold without touching the reserve. 
But even if we had had a surplus revenue during the last two or three 
years, the withdrawal of gold for shipment has been much greater than 
it was before. During the year 1893 the net exports of gold were nearly 
$87,000,000, an amount never equaled before in the history of the coun- 
try. That was caused, I think, not by the fact of an insufficiency of 
revenue, but by the distrust which prevailed in financial circles not only 
here but abroad. Of course the fact that our revenue was insufficient 
was one of the features which aggravated the situation. 

Mr. Hall. It has beer, stated by Mr. White in regard to your bil] 
(not in the spirit of criticism, but probably drawn out by some ques- 
tion) that the effect of it would be to release 165,000,000 of greenbacks 
now covered under a bushel by the reserve and throw that amount on 
to the country as a drain upon the gold reserve. 

Secretary Carlisle. I do not think so. The banks, if judiciously 
managed, as I believe and hope they will be, would still hold their 
reserves. I do not think any banker would say that it was safe for him 
to conduct his banking business without a reserve, and he will 
always want to hold it in the best money, so that he can put his 
hand upon something that is always safe — something that he can go 
and get the gold for, and will naturally, without compulsion, hold it in 
legal-tender notes, Treasury notes, and gold certificates. As to 
another suggestion, that under this plan the national banks and indi- 
viduals can hoard United States legal-tender notes and Treasury notes, 
and thereby prevent the organization of any more national banks, I 
think that any gentleman who looks for a moment into the matter will 
see that is not a sound objection, because in order to do that the banks 
would have to lose the interest on all that money. There are now 
498,000,000 of such money outstanding, and there is no danger that the 
banks would undertake to hoard and keep it out of circulation. 

Mr. Johnson, of Ohio. No circulation can be issued under your plan 
except by a deposit of some part of the 498,000,000 of legal-tender 
notes. 

Secretary Carlisle. Yes. 

Mr, Johnson, of Ohio. Taking 23,000,000 of that as being possibly 
destroyed would leave still 475,000,000 available. If the national 
banks and the State banks took out circulation to the limit of their 
present capital that would require 225,000,000 of these legal-tender 
notes. The national banks could convert their surplus into capital 
and take out an additional amount of circulation; that is practicable, 
is it not? 

Secretary Carlisle. Yes. 

Mr. Johnson, of Ohio. But assuming that they do not, without that 
risk and without the purchase and cancellation of these greenbacks, 
there would be left 250,000,000 of greenbacks outstanding. The 
250,000,000 can be held in the reserve of the banks now without cost 
to them, so that there would be no available greenbacks for new banks 
to get circulation on unless they paid a premium for the greenbacks. 



54 NATIONAL CURRENCY AND BANKING SYSTEM. 

Is it not possible, therefore, that if it is profitable to these banks they 
can either require a profit on the greenbacks in order to allow new 
banks to take out currency, or can refuse to let them have the green- 
backs and thus corner the business of the national bank note issue. 

Secretary Carlisle. As 1 said before, all things are possible; and if 
banks can find a way to make these greenbacks profitable to them- 
selves, they might do so; but what would be the effect on the Treasury 
Department? It would be relieved at once of the difficulty under 
which we are now laboring. There would be no greenbacks out, and 
of course there would be no gold taken out of the Treasury. When- 
ever that time comes I presume we will have a Congress which will take 
such action as is necessary for relief. We can only legislate for the 
present time and provide as far as we can foresee for the future. 

Mr. Johnson, of Ohio. Would not that have this result: Three or 
four national banks with 280,000 stockholders interested to prevent the 
changing of the law by which they have cornered the basis of the cir- 
culating medium. 

Secretary Carlisle. Yes; but that is a very small proportion of the 
American people. 

Mr. Johnson, of Ohio. But it is the most powerful organization, you 
can imagine. Your estimate of the additional profit that a bank with a 
circulation of $75,000 would have over its profits under the present law 
averaged, I think, about $2,000. 

Secretary Carlisle. About $1,500. 

Mr. Johnson, of Ohio. In five years it will average $2,000 a year. 
That makes $750,000,000 of circulation, at a profit to the banks of 
$15,000,000. 

Secretary Carlisle. To the whole 4,000 banks. I have not made the 
calculation, but I suppose it to be correct. I do not object to national 
banks making all the profit they can legally, nor do I object to State 
banks doing the same thing. 

Mr. Johnson, of Ohio. Would you not object if by that they prevented 
other banks from taking out currency'? 

Secretary Carlisle. I would not want to give them a monopoly. 

Mr. Johnson, of Ohio. You would not do so if you would allow them 
to deposit gold in order to take out currency. 

Mr. Walker. I wish to bring out as clearly as possible the difficul- 
ties under which the Treasury is laboring in regard to maintaining the 
gold standard which the law requires you to do. It has been said that 
the present difficulty is because the revenues of the Government are 
too small. Is it not a fact that no gold is now being paid into the 
Treasury, and that the habit of paying the Government's dues in some- 
thing other than gold has been increasing ior a long period, and that 
we have got to that point that even if our revenues were now increased 
so as to have a surplus the chances are that' we should still have to sell 
bonds to get, gold? 

Secretary Carlisle. I do not see the immediate prospect of the 
Treasury Department being in a position which will enable it to avoid 
the issue oi bonds. I am sorry to say it, but that is the actual condi- 
tion, provided we are to continue the redemption of these notes in gold 
(not in silver) and maintain the parity of the two metals. 

Mr. Walker. Is it not a fact that on the construction of the law, 
both on the part of the Treasury Department and on the part of the 
public, shows a consensus of opinion that the Treasury must buy gold 
and that, however large the revenues may be, if any gold be wanted 
for shipment or for the redemption of greenbacks the Treasury is at 
the mercy of any syndicate of bankers, foreign or domestic? 



V 



NATIONAL CURRENCY AND BANKING SYSTEM. 55 

M 

Secretary Carlisle. There is no doubt about that. 

Mr. Walker. And the only relief is either to extinguish the green- 
backs or to have their redemption put upon some other basis. That is 
the condition of things exactly, is it not? 

Secretary Carlisle. It is, and 1 am very much inclined to think 
that it would afford but little relief to the Treasury if we were to require 
one-half or perhaps even the whole of our customs dues to be paid in 
gold. 

Mr. Walker. Would not that send gold to a premium at once? 

Secretary Carlisle. Before the resumption of specie payments, when 
there was outstanding no paper which the banks or individuals could 
present to the Treasury and demand gold, the payment of customs 
duties in gold could be very well maintained, because when the Gov- 
ernment got the gold it could hold it. But, under the present sys- 
tem, if the law required the customs duties to be paid in gold, the 
importer might siniply come to the subtreasury and get the gold for 
greenbacks, and the same gold would remain there, substantially, all 
the time in the subtreasury, being turned over day after day. Now, if 
we had a surplus revenue, we could save some gold out of it, but hav- 
ing no surplus revenue, I doubt very much whether the legal require- 
ment that customs should be paid in gold would be of any benefit to the 
Treasury Department. If we got all our customs duties paid in gold 
there might be an accumulation, and we might save the surplus. 

Mr. Henderson. As long as there was a hundred millions of gold 
reserve kept in tact in the Treasury was there any alarm about the 
redemption of our outstanding Treasury notes and other obligations'? 

Secretary Carlisle. I think there was not any general alarm. 
There may have been some individual opinion that the time would come 
when there would be a drain upon that reserve. 

Mr. Henderson. Was it not when we began to increase the volume 
of currency under the Sherman law that the alarm Avas felt throughout 
the country? 

Secretary Carlisle. I have caused to be made out at the Bureau of 
Statistics a graphic statement which will show the movement of gold 
into this country and out of this country, from which the operations of 
the silver laws will be shown very clearly. Gold ceased to come in; 
our imports of gold ran down immediately on the passage of the Sher- 
man law and continued to go down. 

Mr. Henderson. We increased the volume of currency by the Sher- 
man law to the amount of $140,000,000. 

Secretary Carlisle. To the amount of $156,000,000. 

Mr. Henderson. And during the same time that amount of gold was 
shipped out of the county. 

Secretary Carkisle. A great deal more than that, I think. I would 
say roughly that the aggregate net exports of gold were more than that. 

Mr. Henderson. Was it your opinion that the Sherman law was 
really the cause of the exportation of gold ? 

Secretary Carlisle. I think it was one of the most potent causes. 
It was the threat pending over the financial world that we would get 
upon a silver basis by reason of our constant accumulations of silver. 

Mr. Henderson. If we had increased the gold reserve over a 
hundred millions of dollars, instead of allowing it to be reduced, do 
you think that there would have been any trouble under the Sherman 
law? 

Secretary Carlisle. I think not. I think that these troubles are 
largely (if I may use the expression) sentimental, largely the result of 
scares. 



56 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Henderson. Naturally the people would have been alarmed by 
the large purchases of silver. 

Secretary Carlisle. They would not have been alarmed if they 
had seen the gold increasing instead of diminishing. 

Mr. Warner. Attention has been called to the question of the rela- 
tive security of State-bank and national-bank currency as i>roposed by 
your bill. There is nothing in that bill, is there, which would prevent 
a State from imposing such additional safeguards on State banks as it 
might deem necessary to give the currency of State banks greater 
security. 

Secretary Carlisle. Nothing whatever. 

Mr. Warner. And there is every presumption that the States would 
do everything that was proper in that direction. 

Secretary Carlisle. I take it for granted that a State is competent 
to manage its own affairs. 

Mr. Warner. In your estimate as to the comparative profit of banks 
on their circulation under the present plan and under the plan proposed 
by yourself have you made any calculation as to whether under the 
present circumstances, in view of the low rates of discount, there would 
be any profit on bank circulation under either plan? 

Secretary Carlisle. I have not made any such calculation as that, 
and I do not know. I would have to assume some rate of interest, and 
it has been assumed at 6 per cent. 

Mr. Warner. In relation to the receipts of gold in the Treasury, is 
it not true that any devalopment of business by which the demand for 
currency became greater would tend to increase the amount of gold 
paid into the Treasury? 

Secretary Carlisle. I think so. 

Mr. Warner. Is it not true that in 1893, for example, one of the 
results of the stringency then was to increase the amount of gold paid 
into the Treasury % 

Secretary Carlisle. Yes ; it came in quite rapidly, so that we were 
able to build up the reserve. Then it was withdrawn for exportation, 
and we had to build it up again. The Treasury Department accumu- 
lated, I suppose, during that summer and fall a gross amount of 
$30,000,000 of gold, but it went out again. 

Mr. Warner. Is it not prossible that, under any currency system so 
elastic as to keep down the outstanding circulation to the amount 
required by the business of the country, the proportion of gold received 
in the Treasury would be much greater than it has been for the last few 
years ? 

Secretary Carlisle. I think so. 

Mr. Warner. So that it might result, from proper elasticity alone, 
that Treasury receipts would be in gold to a much greater extent than 
of late? . 

Secretary Carlisle. It might. 

Thereupon, at 1.06 o'clock p. m., the committee took a recess until 
2 o'clock p. m. 

after recess. 

Hon. James H. Eckels, Comptroller of the Currency, appeared before 
the committee. 

Mr. Hall. Before Mr. Eckels begins his remarks, I want to suggest, 
Mr. Chairman, that the members of the committee just allow Mr. 
Eckels to go ahead in his own way and make his own argument from 



NATIONAL CURRENCY AND BANKING SYSTEM. 57 

beginning to end. Let us make notes as he goes along, and then at the 
close of his remarks we can ask him questions. I say this, because I 
know it embarrasses a man oftentimes, and sometimes disconcerts him, 
to be asking him questions at a time when he is making a logical and 
connected statement. 

The Chairman. That suggestion will be adopted as the sense of 
the committee, if there be no objection. 

Mr. Eckels, the Comptroller of the Currency, in pursuance of an invi- 
tation extended to him by the committee, is now present, and will 
address the committee. 

The chair will suggest, as he has communicated to Congress already 
his annual report which refers in some portions of it to the currency, 
that he make any additional or further explanation of the plan which 
he has suggested to the committee that he may deem desirable or 
necessary. 

STATEMENT OF HON. JAMES H. ECKELS, COMPTROLLER OF THE 

CURRENCY. 

Mr. Eckels. Mr. Chairman and gentlemen of the committee, I am 
not familiar with the methods in vogue in hearings before a Congres- 
sional committee, and therefore if I should state something that should 
be omitted, or if I should omit something that should be stated, I shall 
be very glad of any suggestions on the part of any member. After 
making the statement which occurs to me may be made I shall be very 
glad to answer any questions that the members of the committee may 
desire to put to me. 

In submitting my report to Congress, in accordance with the provi- 
sions of the statute defining the duties' of the Comptroller of the 
Currency, several things entered into consideration, leading me to make 
the suggestions which appear in detail in my report. I felt that the 
importance of the subject was so great that nothing ought to be under- 
taken in the way of national legislation unless the resultant effect 
should be more beneficial to the general public than is the present 
system. 

The benefit which a bank confers upon a community arises from the 
fact that it represents, if I may use the term, the organization of cap- 
ital. By that I do not mean the combination of capital as that term is 
understood, but it represents organized capital. A bank in every com- 
munity gathers into it the idle money of such community and directs it 
into channels where it can be of benefit in the development of such 
enterprises as the community is interested in; and to that extent it is 
of sufficient importance to warrant a very careful consideration of every- 
thing in the way of legislation which trenches upon it. 

After a bank is established the public is led to deposit in it the 
amount of money which they have no use for in the daily transactions 
of business, and therefore every dollar going into the bank becomes a 
means of supporting, instead of a single transaction, as would be the 
case where money is passed from hand to hand in each transaction, a 
great number of transactions. 

The extent of the banking interest in this country — and I speak now 
simply in this instance of the national banks — is represented in capital 
alone to the extent of quite $680,000,000. The assets which the 
national banks hold are something over $3,400,000,000. The number 
of depositors in national banks alone approaches 2,000,000 people, and 
when you come to add to that the number of depositors in State and 



58 NATIONAL CURRENCY AND BANKING SYSTEM. 

savings banks you find that there are almost 8,000,000 depositors, or 
one person in about every seven or eight of our total population. 

Mr. Johnson, of Ohio. That may possibly represent the same man 
several times. 

Mr. Eckels. That may be, but the duplication is simply a small 
percentage. 

This number of people, this amount of capital, and the amount of 
deposits represented have led me to think that anything undertaking 
a radical change from what is now in existence should be surrounded 
with such safeguards that it would, immediately upon going into opera- 
tion, command the complete confidence of the people. Banks are largely 
built upon confidence, and that is especially so of a bank which issues 
notes. Confidence is something that can not be constructed as you con- 
struct a house. You can not construct credit. You can not build 
credit as you build a house, or as you construct any mechanical device. 
It is the result of growth. Just as a tree grows so credit grows, and you 
have to do, in dealings with banks, that which will make them immedi- 
ately receive to themselves the confidence of the people, and make the 
instruments which they issue as instruments of credit entitled to the 
confidence of the people. 

The national banking system is a system which might very aptly be 
said to be a national habit with the people, because the great majority 
of the people who are now in active business are people who know little 
or nothing of any other system of note issue; and even upon the side 
of deposits the general public, I think, has had thoroughly ingrained 
into it during the last thirty years the predominance of the national 
bank to such an extent that it may very justly be said that the dealing 
with them is an integral part of the business habits of the people. 

Therefore, when it is undertaken to change something which has been 
so long in operation, and which is so intimate in all its relations with 
every business interest, and which affects them so largely and reaches 
so many people, it can not be done by any decided or rapid method. 

Mr. Walker. Any new method. 

Mr. Eckels. Any new method. Therefore, when I took up the 
national-bank act to make suggestions to Congress at this time it seemed 
to me nothing ought to be touched in it which could not be materially 
improved upon. I thought also that nothing ought to be touched 
which was not absolutely essential to the attainment of such reforma- 
tions in the currency as would be promotive of the business interests 
of the people, and to that extent be a benefit to the Treasury Depart- 
ment of the Government. t 

The present system of banking in this country differs from that of any 
other country, except the countries of the English-speaking peoples. 
This is an important consideration which must be taken into account 
by this committee and by Congress in dealing with this question. In 
this country the note-issuing function of our banks is at present but 
the incident to banking. The deposit account is the principal. The 
Bank of France makes the note-issuing function everything. The 
French people keep their money in their individual possession, and use 
large amounts of it in their daily transactions, and do not trust the 
banks. So also the Germans and other Continental people. Therefore 
you must draw a distinction when you come to invent a system of issu- 
ing notes and come to consider the banking interests between this 
country and France. The same thing can be said of Germany. The 
same thing can be said of the banks in Liussia. The only similarity 
between the banking interests of other countries and this is that which 



NATIONAL CURRENCY AND BANKING SYSTEM. 59 

exists between the banking interests of England, Scotland, Ireland, 
Canada, and tliis country. Therefore when you undertake to devise 
for the United States a new system of issuing currency, you can not do 
it without taking into full account the fact that the use of the deposit 
feature is the principal thing, and anything which shall injuriously 
affect the deposit side of banking must be injurious to the whole 
system. 

It is proposed, in the plan which is suggested in my report, to dis- 
turb as little as possible the present order of things. I think I state 
in that report that if you simply desire to devise a means of making a 
bank note absolutely and unquestionably secure, then the present sys- 
tem is as good as could possibly be devised, so long as the Government 
maintains its lull faith and credit with its debtors through the pay- 
ment of the bonds which it issues. If, however, you attempt to devise 
a system Avhich would make the note holder just as safe, and at the same 
time meet the complaint which is constantly made of the present sys- 
tem, of requiring a deposit of bonds whose value in the markets fluctu- 
ates, while keeping always the same percentage of issue against such 
bond deposits, you must have some other system which will secure the 
note upon the one hand and on the other hand have such elasticity in 
the issuing power that it shall always be responsive to the varying 
wants of business. 

You must, in order to make any bank note a proper currency and one 
which will command the complete confidence of the people, converti- 
bility upon demand — not ultimate convertibility, but such converti- 
bility that whenever a note holder wants the money for which he holds 
the promise of the bank to pay at that very instant the bank shall pay 
him the money which his note calls for. Therefore, of course, the con- 
vertibility of the note is a first consideration. 

After this consideration comes the proper regulation of the issuance 
of the notes, and if a system can be devised whereby the convertibility 
of the note is made absolutely certain, in coin upon demand, and at the 
same time you can give to the bank the power, in times when a great 
amount of money is needed, to meet the then needs of business, you 
will secure a system which, to the extent that it gives such elasticity, 
will be a great improvement upon the present. 

The plan suggested in my report requires of the bank to deposit with 
the Treasurer of the United States, so long as the bank shall be in 
existence, 50 per cent of its capital stock in legal tenders in exchange 
for which deposit, dollar for dollar, it shall receive bank notes which 
shall be untaxed, and be used as a part of the legal-tender reserve of 
the bank against deposits. To this extent, at least to the extent of 50 
per cent, so long as the Government stands back of the legal tenders, 
50 per cent of the notes are absolutely secure. 

For doing this I would give the banks the privilege of issuing to 
the extent of the other 50 per cent of their capital notes against their 
assets, secured by a proper safety fund to be raised by a proper tax. 

The question will undoubtedly occur to many people: Why should 
the banks be required to deposit this 50 per cent of legal tender — 
whether because it is necessary to make absolutely certain the redemp- 
tion of the notes, or for some other i)urpose? Frankly, I do not believe 
that it is necessarjr for the security of the notes. 1 believe that with a 
proper safety fund, raised by a proper rate of taxation, the notes issued 
would be perfectly safe. 

But the Treasury of the United States is confronted with a condition 
which grows out of the fact that under the exigencies of the Avar the 



60 NATIONAL CURRENCY AND BANKING SYSTEM. 

law-making powers authorized the issuance of a currency which, in and 
of itself, never could have maintained itself if the Government had not 
endowed it with legal-tender qualities; and coupled with that was the 
provision that it should be exchangeable in amounts of $50 and multi- 
ples of $50 for a United States bond drawing a certain rate of interest. 
That promise to pay money, not money itself, was only agreed to, 
according to the debates in Congress at that time, because of the neces- 
sities of war; and according to the decision of Judge Strong in the legal- 
tender case, was held to be properly a legal tender only because of 
the exigencies of war. Afterwards these issues were no longer made 
exchangeable for bonds, and thus recognized distinctively as a debt of 
the Government to the people who held those promises to pay. 

This change was for the reason, as Secretary Chase stated, that the 
bond which thereafter had to be issued could not be floated to such advan- 
tage as otherwise because of this exchangeable feature of the legal- 
tender act. But thereafter Congress still felt, and the idea was still 
entertained, that this issue of the Government was not money, but was 
simply the promise to pay money, for which, as had been stated in 
the debates prior to its issue, the Government, with all the property 
of the citizens, stood back of ; and so, under Secretary McOulloch, 
it was permitted to be retired at the rate of $4,000,000 per month. 
Thereafter, as you all know, the retiring of them was done away 
with, and the amount fixed as to the extent to which the legal tenders 
should be an outstanding obligation. For the purpose of maintaining 
the credit of the Government these legal-tender issues, sanctioned by 
the courts, were always to be redeemed in coin, as was provided — no; it 
was not provided, but the practice of the Government was to maintain 
its credit, and so it proceeded to redeem them in coin, and the con- 
struction was that they were redeemable in gold. 

For some time this condition of affairs did not work particularly to 
anyone's disadvantage, although I think the general consensus of 
those who have looked into the matter of the issue of promises to pay, 
not convertible on demand, but only ultimately convertible, is that it 
made the war a great deal more expensive than it otherwise would 
have been. These promises to pay, however, did not materially affect 
the Government, especially under the resumption act, until the Gov- 
ernment found itself without surplus revenue. Therefore, not having a 
surplus revenue, it was unable, in order to maintain the credit of the 
Government, to currently redeem these notes except by borrowing 
money through the issue of bonds, which of late it has been compelled 
to do. 

It is evident that the trouble with the Treasury upon that side is the 
source, to the greatest degree, of the disturbed business conditions 
of this country, and is the greatest source of danger to the mainte- 
nance of public credit, both at home and abroad. The imperfections of 
the banking system, which go simply to elasticity in the matter of the 
issue of the notes of banks, are but an inconvenience and a bar to 
domestic trade, simply compelling banks to resort to other credit 
devices instead of promises to pay in the form of bank notes. 

The difficulty arising through the redemption currently and reissue 
of the evidences of indebtedness on the part of the General Govern- 
ment is that which depletes continually the gold reserve, and so long 
as they are reissued, so long as they are a source by which the gold can 
be taken out of the Treasury, and so long as a single one of them is 
out, just so long will it be impossible to keep there your gold reserve 
above $100,000,000 or $50,000,000. So long as people can get these 



NATIONAL CURRENCY AND BANKING SYSTEM. 61 

greenbacks, then the issuance of bonds and the supplying of new gold 
is like pouring water into a hole — into an abyss which is fathomless. 

The result of such state of affairs is that the confidence of not only 
our own people, in the ability of the General Government to maintain 
the parity of the two metals and keep faith with the public in the 
redemption of its indebtedness, is continually shaken, but confidence 
of other countries, who are dealing with us, in our ability to so do, is also 
shaken. You can not get away from the idea that in monetary affairs 
you can not legislate for the American people alone, unless by that same 
legislation you decree that the people of this country shall trade with 
no one except people who live within the domain of the Government of 
the United States. So long as the people of the United States in their 
business relations are brought so intimately close with people of other 
countries, just so long must the monetary laws of this country be regard- 
ful of other conditions than our own. 

You can not have here a currency system, or rather a Government 
currency system, which disregards the fact that other countries dealing 
with us only use the metal, for international exchange, which, by the 
whole commercial world, is regarded as the one necessary metal for 
exchanges. Therefore, saying nothing about the maintenance of the 
value of our currency issues at home, you must maintain the public 
credit abroad so long as these business. relations exist; and so long as 
so many American securities are held abroad as are at the present you 
must maintain the redemption of Government notes in gold coin. 

Undoubtedly the manly thing to do, and the thing that ought long 
since to have been done, would be the redemption and the canceling of 
these notes in accordance with what was designed at the time of the 
enactment of the legal-tender act, followed by the authority given to 
Secretary McCulloch, but which was afterward repealed. 

But the conditions which now exist are simply such that, without a 
surplus revenue or without the issuing of a bond funding the green- 
backs and Sherman notes, you can do nothing unless some plan which 
is equitable and puts no hardship upon anyone can be devised. 

Personally I am very frank to say that I do not think the Govern- 
ment ought to unload its proper duties upon its citizens. I do not think 
the Government has any more right to do a thing that is not exactly pro- 
per in itself than an individual has. But at the same time we have to 
take conditions as they are, and the conditions which exist now are such 
that there seems to be no probability and no possibility of having those 
notes immediately canceled by means of a surplus revenue ; and I 
do not think that bond issues are very popular. 

But it is proposed now to give the banks what, I think, is a valuable 
franchise, the right to issue notes against assets as against a deposit 
of bonds. For that franchise it seems to me that the banks ought to be 
willing to make a fair return. 

I do not think the Government ought to be in the banking business. 
No government has ever successfully issued notes, made them legal 
tender, and escaped trouble from them. It is safe to say that the cause 
which produced one effect a hundred years ago in the same line of 
finance will produce the same effect now, and it does not make 
any difference whether it is the English or French Government, 
or the Government of the United States that undertakes it. To the 
extent of getting those notes out of the channel of current redemp- 
tion, and to that extent relieving the Secretary of the Treasury, and 
thereby the business interests of the country, because they are 
affected by the continual disturbance in the Treasury Department, 



62 NATIONAL CURRENCY AND BANKING SYSTEM. 

growing out of the effort to maintain the current redemption of these 
notes, for that purpose, and on the ground that it is giving the banks 
a franchise, which I think may prove to be a profitable one, I think 
the banks ought to be compelled, for the right given them of issuing a 
percentage of notes of their capital stock against their assets, to deposit 
with the Treasurer of the United States legal-tender notes and thus 
get them out of the way of current redemption. These notes, as I said 
before, would be returned dollar for dollar in bank notes. 

Mr. Walker. Treasury notes ? 

Mr. Eckels. These Treasury notes would be received and returned 
dollar for dollar in bank notes. They would not be subject to any 
taxation, giving the bank the benefit of that. They would be per- 
missible to be held to an equitable extent as a part of their legal 
reserve, if legal reserves are maintained. 

And upon that point it is probably proper to say that at present, 
under the clause in the national-bank act which compels banks to keep 
a legal reserve against deposits, $165,000,000 of legal tenders are locked 
up in that way and gotten out of the way of current redemption. 

The Chairman. Will you be kind enough to state that again? 

Mr. Eckels. I say it is proper to say at that point that under the 
present system requiring the banks to keep a legal reserve against 
their deposits, of 15 per cent in places that are not reserve cities and 
25 per cent in cities that are reserve cities, $165,000,000 of legal tenders 
are locked up in the banks, and thus to that extent are removed from 
the channel of current redemption. 

Mr. Walker. To-day, you mean? 

Mr. Eckels. Yes ; I refer to the figures obtained at the time of the 
last call, October 2. 

The only change which this makes in existing laws is this : That 
under existing laws every bank, before it is permitted to do business as 
a national bank, is compelled to deposit so long as it exists one-fourth 
of the amount of its capital stock in United States bonds. It can take 
out, if it pleases, circulation on that one-fourth, or it can simply leave 
the bonds. But it must make the deposit whether or not it takes out 
any circulation. There are seven or eight banks which have deposited 
bonds but have never taken out circulation, because there was not 
enough profit in it to warrant the trouble. 

Under this plan I suggest I would compel them to deposit $50 as 
security, giving them dollar for dollar for it, and $50 in addition 
against their assets, thus giving $100 against a deposit of $50 in legal 
tenders instead of, as under the present system, compelling them to 
deposit for that circulation 4 per cent bonds, $114 as security and re- 
ceiving $90 in exchange. 

The profits to the banks, of course, would be nothing upon the legal 
tenders which they exchange. A bank would have to look for its profits 
in the notes which, having deposited the legal tender, it was permitted 
to issue against its assets. 

It is said that probably the banks could not keep out any more than 
the 50 per cent which they must keep in circulation for the legal-tender 
deposits, but I think an inquiry into the facts will show that this is not so. 
The deposit of legal tenders and the exchange dollar for dollar, it will be 
seen, does not in any wise lessen the volume of the circulating medium 
of the country, because for every dollar of greenbacks deposited is 
given out instead a dollar through the bank. So that, so far as that 
is concerned, the volume of the currency would remain the same. 

Under the present capital stock of the banks they would deposit 
about $340,000,000 of legal tenders withthe Treasurer. 



NATIONAL CURRENCY AND BANKING SYSTEM. 63 

A Member. What is the exact amount? 

Mr. Eckels. It is a half of $668,000,000. There are altogether 
$498,000,000 of legal-tender notes and notes issued . under the law of 
1890. If no other bank went into the system, if no bank increased its 
capital, if no bank capitalized its surplus, which could readily be done, 
and as soon as it might be taken out, or as soon as it could be put into 
operation with due regard to safety, there would be taken away about 
$331,000,000 of legal tenders which are now used for the purpose of get- 
ting gold out of the Treasury. That alone would not, as I said, either 
increase or expand the present volume of our currency. 

Mr. Hall. Would it interrupt you, Mr. Eckels, for me to ask you a 
question about that $165,000,000? 

Mr. Eckels. aSTo, sir. 

Mr. Johnson, of Indiana. I think we had better adhere to our origi- 
nal plan. 

The Chairman. Members of the committee are not supposed to inter- 
rupt Mr. Eckels, 

Mr. Hall. I would say to the committee that Mr. Eckels and I were 
talking about this question during lunch. 

A Member. I object. 

The Chairman. The gentleman from Missouri can put his question 
at Mr. Eckel s's convenience. 

Mr. Eckels. As I said before, to that extent it would neither be a 
contraction nor expansion of the volume of the circulating medium, 
but simply a substitution of one thing for another. 

Now, in addition to compelling the banks to deposit that amount of 
legal tender for the privilege of the issue against the balance of the 50 
per cent of their capital stock against assets, I would say that they 
should provide a redemption fund to that extent in gold coin, making 
the banks themselves responsible for the redemption of their notes in 
gold coin, and ultimately the Government would have to redeem in gold 
coin either the legal tenders which were deposited or the notes of the 
banks to the percentage of the legal tenders. But currently I would 
compel the bank to redeem that percentage of its notes in gold coin, 
and the only responsibility which the Government should assume, so 
far as that percentage of notes is concerned, is the ultimate redemption 
of the legal tenders deposited or the percentage of notes issued against 
them when the bank went out of existence, either through voluntary or 
involuntary liquidation. My idea being that these notes should be kept 
with the Treasury, just as the 25 per cent of bonds is kept there, 
whethei or not notes are issued against them permanently, because 
when the bank goes out of existence it is provided that the Government 
shall redeem and cancel the legal tenders which it had on deposit. 

These are the burdens which are put on the banks. Unless there is 
a sufficient profit in circulation banks will not take out circulation. 
There is no sentiment in the thing at all. It is simply a matter of busi- 
ness, and banking people, like everybody else in business, are in it 
because of the profit there is, and if there is no profit in circulation 
•under the present system, or very little, they will not continue in the 
note issuing business, which is such a trivial thing as compared with 
the deposit business of banks, but will go out of the national banking 
system, and to that extent will reduce the already present volume ot 
national-bank issues. 

The question as to whether or not the banks would continue to issue 
notes would turn entirely upon the question of profit, and that would 
depend entirely upon the number of .their promises to pay in the 



64 NATIONAL CURRENCY AND BANKING SYSTEM. 

sliape of bank notes which they could keep in circulation. The com- 
plaint on the one hand is now that there is no profit in circulation 
because they are compelled to deposit $114 and only get $90 in return, 
thus locking up so much of their capital which they could more 
advantageously use in the immediate communities in which they are 
doing business. On the other hand, the complaint is that the profit on 
circulation is so slight under the present system that it is not worth 
while for banks to issue it because of the difficulty of getting their notes 
into circulation on account of the great volume of United States issues 
which circulate and crowd out the national-bank issues. They are, 
however, able to keep in circulation at present $207,000,000. I think in 
1890 circulation was do^n to $120,000,000, but the banks found more 
use for notes, and possibly more profit, and so they have taken out 
more. 

It is safe to say that if you did not change the volume of currency 
at all, but left it just as it is, the banks could keep out this $340,000,000 
exchanged for their legal tenders, as that would simply fill up the 
vacuum by taking the issues away from the Government, and, in addi- 
tion, could keep out as much national bank circulation as they have at 
present, which would amouut to $207,000,000. To the extent, therefore, 
that the $207,000,000 is issued against assets, they would make a con- 
siderable profit, and if they should, as they undoubtedly would, at 
seasons of the year when there was more demand for money, take out 
the balance of the issues due upon the 50 per cent of capital as against 
their assets, to that extent would their i>rofits be enhanced. Just as 
you would have an actuary of a life insurance company figure out 
profits upon investing in the stock of a life insurance company, after 
taking the losses which are incident to the business, so you can take 
and figure out, from what you know of the present circulation and the 
present ability of. the banks to use note issues as against bank deposits, 
what the profit would be if they were allowed to issue against a 
deposit of legal tender and against their assets. 

Mr. Walker. Plus what they issue themselves. 

Mr. Eckels. On what they issue themselves is where the whole profit 
would be. If they can make a profit by issuing $90 against an invest- 
ment of $114, on $207,000,000 of currency it is safe to say that they can 
make a large profit on deposits of $50 and note issues of $100. I think 
that is simply a matter of figuring. 

As to the question of elasticity : Of course there is no elasticity in 
the 50 per cent which is issued against legal tenders, because that 
is simply a fixed sum. But the elasticity in the issue would be within 
the percentage of notes to the extent of 50 per cent, the range of 50 
per cent issued against the assets. I believe that within that range 
could b3 found the elasticity which the wants of business require. I 
believe that the question of elasticity is one which is governed by two 
things. It is governed by the needs of business, on the one hand, and 
it is governed, on the other hand, by the fact that the notes issued are 
made convertible into coin, not ultimately, but immediately; and that 
if you have out a large volume of currency, bank note or any other cur- 
rency, that is redeemable, not theoretically, but redeemable in fact in 
coin, every dollar which is not needed for business will immediately 
return for redemption; that, in other words, you can not keep out and 
in circulation a redeemable dollar to the extent that that dollar is not 
needed; that the needs of business control; and that every dollar which 
is redeemable in coin upon demand and that is not needed for the daily 
transactions of business will, from the law of business itself, go right 



NATIONAL CURRENCY AND BANKING SYSTEM. 65 

back to the issuing- bank and be redeemed, and not be issued again until 
it is again needed. So that the question of elasticity depends upon 
these two things, or, in fact, upon the one thing. 

Mr. Walker. And to the interest of the bank? 

Mr. Eckels. And the interest of the bank; yes. It would not keep 
the money out, of course, unless there were a profit in it. So I think 
within the range of the 50 per cent of notes issued against the assets 
convertible upon demand would be such elasticity as is needed. 

Mr. Johnson, of Ohio. Where would they be redeemable 1 ? 

Mr. Eckels. They would be redeemable, if you follow the present 
law, either at the banks themselves, or in Washington; or, if you 
change the present law, at the banks themselves or at such point of 
redemption as should either be named by the bank, with the approval 
of the Comptroller of the Currency, or, as might be provided by the 
Government, at such point as should be named by the bank. I think 
prior to the present system it was provided that the banks might name 
redemption agencies, with the approval of the Comptroller of the Cur- 
rency. It would be just as under the old Suffolk system in Massa- 
chusetts, the notes of banks issued in New England which were con- 
vertible into coin and were not needed for business immediately went 
back for redemption, and there was never kept out a single dollar more 
than was needed by the people in their business. 

I do not believe you can force into existence a single dollar more 
than is needed, if it is good money. The whole thing turns upon the 
goodness of the dollar so far as the redemption feature is concerned. 

Therefore, I think the system which I have suggested would relieve 
the Treasury, to the extent which I have named, of the current redemp- 
tion of the $340,000,000 of greenbacks. On the other hand, I think in 
the range of percentage which I have named would be found elasticity 
and profit to the bank. 

Now, the other thing which must be considered in connection with 
issues against assets is whether or not the notes issued against the assets 
would be perfectly good. I think upon the question of note issues, 
whether State or National, the Government, ought to have something 
to say as to what banks should issue notes, and under what circum- 
stances. 

There are a great many things which Governments can not do them 
selves, but there are a great many things which Governments have an 
inherent right to regulate, just as municipal governments regulate the 
right as to where gunpowder shall be kept — as has been said by some 
authority, just as municipal governments regulate certain internal 
arrangements; just as the State government to-day regulates how sav- 
ings banks shall be kept, how depositors or the other people inter- 
ested in banks shall be protected; just as the Government of the United 
States regulates or undertakes to regulate the commerce between the 
States under the interstate-commerce act. 

There is power which inheres in Government, but which it is not best 
for it to exercise. I think that, especially in the issuance of bank notes, 
the thing ought not to be done by Governments, because Governments 
have never yet been able to properly control the issues which come 
directly from them, through the fact that, in order to make their 
money circulate at all, they must attach to it a legal-tender quality and 
compel a man to take a thing which otherwise he would not. Some- 
body has very aptly said that the giving of a legal-tender quality to 
Government issues was all right so long as people believed in the divine 
right of kings, and believed that in a king's touch there was divine 

NAT CUR 5 



66 NATIONAL CURRENCY AND BANKING SYSTEM. 

healing, but not now when we do not entertain such beliefs. So, on 
the same principle, Governments, because of the power in them, or which 
they assume to themselves, give these bank notes legal-tender quality, 
and therefore they circulate because of that fact. 

Mr. Johnson, of Ohio. Would you receive these notes for public 
dues ? 

Mr. Johnson, of Indiana. I object to any interruption. I think the 
gentleman from Ohio had better let Mr. Eckels proceed. 

Mr. Eckels. I will come to that later, Mr. Johnson. 

So that I think the Government ought to regulate these issues for 
the reasons which I have named - 

The other question to be considered, 1 started to say, was whether 
or not these notes would be paid — the notes which are issued against 
assets. Of. course, the only thing you can judge by in arriving at any 
conclusion as to a matter of that kind is something of a speculation. 
But very frequently you can take a certain set of tacts and put them 
together and arrive at a correct conclusion on the theory that when a 
thing has been done or produced by certain causes, it is safe to say 
that the same causes will produce the same effect. 

It is safe to say that the losses which have occurred under the 
national-bank system would not have occurred, nor would there have 
been any danger of loss if a single dollar of bonds had not been deposited, 
for the loss has not occurred because of the management of the banks 
and the supervision and care which have been exercised over them. 
It has not been because of a deposit of bonds. 

Mr. Walker. The failure has not occurred % 

Mr. Eckels. Yes; the failure has not occurred. 

I venture the assertion that with the same set of men, following the 
same kind of banking, and under the same uniformity of the system and 
the same supervision as required by the public, by statements every 
so often, to make reports or statements every so often, prohibited from 
lending upon any asset which was not a quick asset, such as real estate, 
but carrying on a purely commercial business as the banks do, the 
same thing would have resulted if there had not been a single dollar 
of security deposited here. It has not been the security unused which 
produced these results, but it was because of the methods employed in 
banking, ancl> because the men in control of the banking institutions 
of the country operating under the system, conducted them in such a 
manner that, instead of being a great source of loss, they have been a 
source of profit to them and a source of benefit to the people. Because, 
whoever may be the people who are engaged in banking, the fact is 
that since the present banking system the business of this country has 
been so facilitated that it is impossible to see how it could have been 
done otherwise than through the banks. The invention of instru- 
ments of credit, the transacting of business involving immense sums 
of money, has all been accomplished by banks. 

Now, the elasticity of the Bank of England issues has been found 
upon every great occasion to be inadequate to meet the wants 
of the business interests of Great Britain at times of great finan- 
cial disturbances. ThePeele Act undertook to seehow many dollars, not 
what percentage, but how many dollars, should be issued of what are 
known as uncovered notes, or notes which are not, dollar for dollar in 
gold, deposited in the basement of the Bank of England. It fixed the 
amounc in 1844 under then existing conditions. In 1847 the defect of 
the attempts to fix any absolute volume of issue was found to be 
patent, and the result was that three years after the enactment of the 



NATIONAL CURRENCY AND BANKiNG SYSTEM. 67 

Peele Act, when it was supposed that the question of the issuance 
and control of circulation bad been settled perfectly, the proper 
authorities had to give to those iu charge of that branch of the bank- 
ing of England the right to issue above the amount of uncovered 
notes fixed by the Peele Act; and by the notes thus issued, coupled 
with the further fact that the directors of the Bank of England at that 
time were induced to loan those who had proper security at a raised 
rate of interest, the panic was averted. 

The same thing occurred in 1857, and the same method had to be 
resorted to on account of the lack of elasticity because of the fixing of 
the amount of uncovered notes which could be issued by a hard and fast 
line determined by the law; and the same thing in 1866. 

Now, the elasticity of this system is to be found in the fact that, not, 
as was the case in the Peele Act, which controlled the Bank of England 
and by which the exact number of dollars of uncovered notes was fixed, 
but because the amount of notes which will be issued under it will 
depend entirely upon the banks themselves and upon the number ot 
banks which come into the system. So, it is safe to say, that there will 
always be within the percentage of 50 per cent a sufficient range in 
elasticity. 

The notes which have been issued by the Bank of England, uoder 
the permission given to issue over its uncovered notes — the increase 
over the uncovered notes has always been just as good as any other 
notes. Of course they are issued against securities, but it has been 
found that the best security which any bank can be possessed of, and the 
security which is the most rapidly convertible, is the good commercial 
business paper of a bank. If anybody doubts that, he has simply to 
look into the history of the last financial distress in this country, a year 
ago, when it was found that a bond was about the hardest thing there 
was to convert. But the quick commercial pax^er was found to be 
most readily convertible. 

Therefore you would have here, for the issue of what you might term 
your uncovered notes, the rapidly convertible assets of a bank. 

The Scotch notes have never failed of redemption. There never has 
been a discredited note issued by a bank in Scotland, and that is due, 
not to any other fact than that the people have confidence in the Scotch 
banker, and to the further fact that the Scotch banker has built up his 
credit and established confidence among the people by the fact that his 
notes are redeemable in coin upon demand. A Scotch note has never 
been discredited, has never been depreciated, and the note holder has 
never lost a dollar, except possibly in one or two instances, and I am 
not positive about those, nor have the stockholders ever been called 
upon to contribute anything to make good the losses on notes. I think 
when the failure of the Bank of Glasgow occurred, a number of years 
ago, other banks, for the sake of the credit of all the banks, came for- 
ward and took up the notes of that bank. 

Mr. Johnson, of Indiana. There was an unlimited liability of the 
stockholders, however. 

Mr. Eckels. Yes ; of course there was unlimited liability of the stock- 
holders. There was that difference, of course. 

The Canadian notes are issued simply against the assets of the bank, 
coupled with which is a safety redemption fund. The redemption fund 
is simply for the notes of failed banks. The amount of it is 5 per cent 
of the outstanding circulation. There never has been a Canadian bank 
note discredited, and never has one failed of redemption. In my report 
I have undertaken to figure out what percentage would be necessary. 



68 NATIONAL CURRENCY AND BANKING SYSTEM. 

Of course it is a matter of calculation, and I may have stated it too 
large or too small. What is necessary is to establish the principle. If 
the principle is correct, then the details are easily worked out. 

You should have a banking system which will not place so much of 
a hardship upon the issue of the banks as to make them prefer the 
deposit side alone to the deposit and note issue combined. You should 
have a system which will get the Treasury out of its present difficulties 
until it can do what it ought to do, redeem and put away these notes. 
You should have a system which makes every note of a bank converti- 
ble on demand, such a system as assures note holders of failed banks 
that the notes which they hold shall be redeemed immediately, upon 
presentation, out of a fund to be held by the Government as agent only. 

In this whole matter of redemptions I think the Government simply, 
if it has anything to do with it— and that is a question which is open 
for discussion, as to whether it ought to have anything to do with it or 
not — but if it has anything to do with it, ought only to stand in the 
position of agent, with supervisory control to see that the banks do 
redeem; and not leave it entirely to the banks themselves to ascertain, 
after a note has been discredited, whether the redemption is going on 
or not. But, if the Government has anything to do with the redemp- 
tion of these notes issued against the assets of the bank, or, for that 
matter, anything to do wdth the redemption of notes issued against legal 
tenders, it ought to be simply in the relation of agent. I do not think 
the Government ought to lend its credit to banks except to the extent 
of taking such precautionary measures as will give the people to under- 
stand that somebody is looking after these promises to pay. I think it 
is generally understood that promises to pay do not take care of them- 
selves without some sort of supervisory care of them. 

Therefore, with the bank note made elastic and made perfectly safe, 
the Government relieved of its present embarrassments until it reaches 
the proper point where it can do as everybody else does — when he gets 
in debt, pay its creditors — I think the general good of the people would 
be promoted. 

Upon the question of redemption the only thing that ought to be 
taken into consideration is as to whether or not the Government ought 
to have anything to do with it or not, or whether or not there should 
be a change of this system which is so embedded in the minds of the 
people, of having every dollar of notes issued secured by a deposit; 
whether or not you can get the people to immediately take the promises 
of the bank to pay without a deposit of so irity, unless the Government 
retains some sort of supervision over the redemption of them, not being 
responsible for the redemption, but exercising supervision to see that 
when a bank gets near, in its redemption fund, to a line, or gets below 
the line of the amount necessary for the current redemption, somebody 
connected with the Government notifies the banks of that fact. 

You can calculate that in any change of system which does away 
with deposited security the people are going to be a little timid. It will 
take a long time to educate them up to it. They have got to learn some 
things, and they have got to unlearn some things. Whether or not 
you can accomplish so much, or whether itw 7 ould be wise to undertake 
to accomplish so much at a single lesson, is a question for you to 
determine. 

If you have a bad system you must cure the worst defect to start 
with. The other things are to be taken up in order. They may not 
be material. You must keep that in view. When you come to the mat- 
ter of reserve against deposits, it, as the Secretary of the Treasury 



NATIONAL CURRENCY AND BANKING SYSTEM. 69 

says, is a matter of discussion as to whether or not it would be wise 
to abolish it. I think everybody will recognize the truth of what he 
says, that it is a great embarrassment at times to the business interests 
that the banks can not loan mouey when down to the minimum percent- 
age of reserve. I think that percentage is put at what might be termed, 
and what has been termed by writers upon these questions, the appre- 
hension point, that point where people become a little uncertain as to 
whether or not a bank is solvent enough to redeem its demand obli- 
gations. 

There is much that can be said upon the question as to whether or 
not there ought to be a fixed limit. I think criticism has been passed 
frequently upon the Bank of England that at times of great emergen- 
cies it has attempted, while there was no fixed law on the subject, to 
have a hard and fast line, and would not loan as much as it ought. Of 
course fixed reserves, as in 1893, sometimes work a hardship. But you 
can not entirely make your calculations from what occurred in 1893. I 
think the man who investigates ail the phenomena of that year will see 
that it comes within the line, as has been stated by some prominent 
financial writer, I think Hicardo, that at times when everybody demands 
coin from a bank, when all the depositors demand coin, no banking 
system and no system of reserves can meet it. The sort of feeling which 
overtakes people when every man rushes to a bank and says: " I want 
my deposit; Iwant my checks cashed; I want my money," will break 
down any system. 

It is impossible at such times to have enough money on hand to meet 
that demand, because the percentage of business done in this country 
is over 90 per cent of credit, and the balance is only done on a cash 
basis. Therefore the cash in all the banks, if every depositor wanted 
his money, would not be sufficient to meet the demand. Last year 
presented one of* those conditions when there was a state of fear among 
the people that no banking system could have stood up under it; but 
the banks which had the largest reserves stood up the longest, and even 
they could not have stood up if they had not devised means to do it. 
You can always rely upon the business instincts of business men to 
devise means to meet just such emergencies. So I say you can not 
entirely judge from what occurred during that year as to this question 
of fixed reserves. 

But this is to be remembered, taken in connection with what I have 
said about the deposit feature of banking in this country being the great 
feature, that you can not afford to scare the depositor upon the one 
side by making his deposit subject to a first lien for the notes issued by 
the bank and on the other taking away a reserve kept for the deposit- 
or's special benefit. On the other hand, it is worth while to take into 
consideration whether you will abolish a hard and fast line which at 
times does work possibly a hardship to the general business interests, 
although last year I do not think all the commercial failures occurred 
by not being able to get money. I think the surprising thing is that 
there were not more failures. The failures were not commercial failures, 
but manufacturers shut down because they could not get money. 

But that 15 per cent and that 25 per cent is by law for the benefit of 
the depositor who contributes to the business interests of this country 
to-day, in the national banks alone, over •$2,000,000,000. The law says 
that when the percentage of reserve is down to 15 per cent in what 
are known as places that are not reserve cities, and 25 per cent in reserve 
cities where there is a great and rapid demand for the deposits, while in 
the nonreserve cities, the agricultural communities, the people are in the 
habit of leaving their money longer, so that it is not necessary to 



70 NATIONAL CURRENCY AND BANKING SYSTEM. 

keep the same amount on hand, it shall not be touched except for the 
depositor. But that sum is there for the benefit of the depositor. Eow, 
if the depositor has money there subject to check, under the law he can 
get it ; every dollar is to be paid to him. The law simply provides that 
when the bank gets to that point it shall not make any new loans or 
discounts except in taking up sight bills of exchange or such paper as 
is immediately convertible into money; and that below the 15 per cent 
and the 25 per cent the money shall be held for the benefit of the 
depositor. But if a man has a deposit he can come in and get it and 
put it into business or use it for any other purpose he may desire, draw- 
ing out the very last dollar of it if he so desires. 

The law recognizes the fact that the banks will at times be compelled 
to make loans and discounts in order to meet the wants of their deposi- 
tors. If loans and discounts are made by banks, even at a time when it 
is a technical violation of the law. the law gives the banks thirty days 
in which to make it up. Instead of making the provision mandatory 
upon the Comptroller of the Currency that he shall — upon the banks 
notmaking their reserve good in thirty days — the law says that he may, 
with the approval of the Secretary of the Treasury, put such banks in 
the hands of receivers and wind them up. 

In the report for 1893, which I made to Congress, that matter is dis- 
cussed; but, as the Secretary says, and as I say, it is a matter of dis- 
cussion. I thought, however, that it was wise to bring it out in order 
that when you gentlemen fully consider the question you may take in 
consideration the views which have been suggested both for and against. 
I think simply taking the single year 1803 is not a fair guide, because 
that was unprecedented in all these respects. It was a time when we were 
suffering internally, and the aggravation was not only internal, but we 
were suffering externally from the fact that our difficulty was, on the 
one hand, that there was a foreign demand for exchanges for a great many 
American securities which were either sent here because the holders 
doubted our credit, or because they had to have money to make up 
losses in their own countries, and we were suffering internally because 
depositors in banks were so frightened within the period from May 
to October that they drew out more than $300,000,000. 

Of course, to meet such state of affairs, the banks had to call in their 
loans and discounts, and the result was that they called in $358,000,000. 
But, in order to make the trouble as slight as possible upon the business 
interests, they took out $36,000,000 additional of bank-note currency, 
and they also added to their borrowings about $40,000,000. They gave 
their customers the benefit of the $36,000,000 additional of bank notes 
and the amount of their borrowings — a sum of money in the neighbor- 
hood of $50,000,000, and in addition thereto, under the stress of circum- 
stances — and I think it was a thing that was perfectly commendable — 
they issued clearing-house certificates, making available for loaning pur- 
poses the amount of money which the clearing-house certificates covered. 

Now, gentlemen, these are my views upon what I have said in my 
report, and upon the question of banking generally. 

Mr. Walker. Mr. Chairman, we have now been in session until 
22 minutes to 4 o'clock. I move that we adjourn until 10 o'clock 
to-morrow, and at that time we continue the hearing of the Secretary. 

Mr. Eckels. There is just one other statement that, before the com- 
mittee adjourns, I should like to make, in order to be fairly understood, 
and that is this: That while the Secretary of the Treasury and myself 
agree on general principles, we differ a little as to methods. I think 
that is perfectly fair to the Secretary and fair to myself. 

Mr. Johnson, of Indiana. May I ask you one question? 



NATIONAL CURRENCY AND BANKING SYSTEM. 71 

Mr. Eckels. Certainly. 

The Chairman. I think ifc is necessary to conclude this hearing 
to-night. 

Mr. Johnson, of Indiana. I simply desire to ask one question. 

The Chairman. Other gentlemen have been invited to appear before 
the committee to-morrow. The chair thinks we can finish this hearing 
in a few minutes to day, and therefore makes the suggestion that each 
member put one question to Mr. Eckels, so as to allow an opportunity 
to all the members fco interrogate him. Mr. Johnson, you may now put 
your question. 

Mr. Johnson, of Indiana. Your plan contemplates exclusive Federal 
control ? 

Mr. Eckels. I did not go into that branch. It is not within my 
province. The question of the safety of the issue of notes by State 
banks would, to my mind, turn entirely upon the construction placed 
upon the right of investigation reserved by the Federal authorities of 
note issuing State banks. I think a very important matter to con- 
sider in connection with all bank issues is that any scheme ought not 
to be devised simply for the purpose of increasing the volume of cur- 
rency. So, in the matter of bank issues, national and State issues, or 
both, I think this ought to be taken into consideration. I repeat, the 
question of the safety of State-bank issues is a question which would 
depend entirely upon the construction given to the supervisory powers 
as contemplated by the Secretary of the Treasury in the plan which he 
has suggested. I believe, as the Secretary of the Treasury stated, the 
dangers incident to State-bank currency are not as a great many 
people seem to think, for the reason that a different state of affairs 
exists than did prior to the establishment of the national system. 
Business methods have improved in the interval and values have 
increased. But whether or not such issues would be safe is a matter 
I should prefer to leave entirely to the discretion of Congress. 

I think, though, it ought to be remembered that whatever relief is 
to be given to the Treasury through deposit of legal tenders by banks, 
it will not do to count too much upon State banks, as there are certain 
States whose constitutions prohibit State-bank issues, and they are very 
important banking States, such as Texas, Missouri, Illinois, and others. 

Mr. Johnson, of Indiana. I asked you the question because you 
had not said anything on that subject to the committee. Of course I 
am familiar with your report on this subject. 

Mr. Hall. You spoke about there being $165,0 f )0,000 of greenbacks, 
these original Treasury notes, and the amount of notes issued under 
the Sherman law, held in reserve, and you said that by abolishing that 
reserve the amount will be thrown on the market, as we make use of 
the expression, and go to deplete the gold reserve. 

Mr. Eckels. They could be used for that. 

Mr. Hall. Pardon me. What I wanted to ask is this: Could it not 
be used for that purpose now ? 

Mr. Eckels. No; because the law requires that this reserve against 
deposits shall be kept in lawful money, and there is not enough lawful 
money in the banks, without taking in some of the legal tenders, to 
keep up the lawful reserve. There is lawful money reserve in bank as 
follows : 

Gold coin $125, 020, 290. 92 

Gold Treasury certificates 37, 810, 910. 00 

Gold clearing-house certificates 31, 096, 000. 00 

Silver dollars 6, 116, 354. 00 

Silver Treasury certificates 28, 781, 897. 00 

Silver fractional currency 5, 422, 172. 58 



7 I NATIONAL CURRENCY AND BANKING SYSTEM. 

Iii addition thereto there were on hand in order to make up the* per- 
centage that under the law the banks are compelled to hav T e — legal-ten- 
der no.tes, $120,544,028, and United States certificates of deposit for 
legal-tender notes, $45,100,000. 

Mr. Walker. I think my motion is now in order, Mr. Chairman. 
I think we shall have time enough to hear Mr. Eckels without sitting 
so many hours. I move that we adjourn until to-morrow, when we 
can hear Secretary Carlisle. I think there is ample time this week to 
have these hearings. 

The motion was rejected. 

Mr. Brosius. State whether you think, in view of the great amount 
of money now in the banks of the country — more than our people can 
use, and very likely more than they will be able to use for years to 
come — there is any urgent need for a revision oi our financial system 
at this time. 

Mr. Eckels. For the sake simply of getting' out money, I say no; 
but for the sake of a proper bank system and for the purpose of reliev- 
ing the embarrassment of the Treasury under which it labors, I say, 
emphatically, yes. There ought to be a revision. 

Mr. Warner. You mention the frequent examination and publica- 
tion of statements of the condition of issuing banks as one of the safe- 
guards which we now have. May I ask how comparatively important 
you consider it, whether very important or of comparatively little 
importance! 

Mr. Eckels. I think it is a matter of great importance, and I think 
if the Banking Committee were as familiar with the reports which 
come in as I am, and the number of times banks have been saved, and 
especially during 1893, by the action of bank examiners, they would 
agree with me that it is very important. And as showing the impor- 
tance of it, I think most of the States now have their bank examiners 
and bank superintendents to look into State institutions. 

Mr. Warner. I have other questions, Mr. Chairman, but 1 will take 
my turn. 

The Chairman. Mr. Cox desires to ask a question. 

Mr. Cox. There was so much noise, Mr. Eckels, that I did not just 
hear your statement; but as 1 understand the matter of disposing of 
the capital stock, 50 per cent of it shall be paid into the Treasury of the 
United States in greenbacks and legal-tender notes ; that is the first 
part, and upon that the bank receives an equivalent amount of bank 
notes. 

Mr. Eckels. Yes. 

Mr. Cox. So he gets just dollar for dollar for that? 

Mr. Eckels. Yes. 

Mr. Cox. Upon the next proposition, the remaining 50 per cent of 
its capital stock, he may receive dollar for dollar for that? 

Mr. Eckels. If he desires it, yes. 

Mr. Cox. That 50 per cent is based upon the assets of the bank, as 
I understood? 

Mr. Eckels. Yes. 

Mr. Cox. There is nothing behind it to redeem it except the 50 per 
cent of assets, the capital stock? 

Mr. Eckels. And the safety fund, in case of a failed bank. 

Mr. Cox. The safety fund is suggested, 1 understand. Now, to come 
back to the Government issue one minute. That, I understand, is not 
to be redeemed in coin until the banks surrender their charters? 

Mr. Eckels. The percentage of notes against legal tenders is to be 



NATIONAL CURRENCY AND BANKING SYSTEM. 73 

ultimately redeemed by the Government, but if any man wants current 
redemption of theni in gold, the banks have to supply the gold for that 
redemption. 

Mr. Cox. Precisely. I am looking to the Government. There is no 
way to force the Government to redeem, is there? 

Mr. Eckels. Oh, no; as I say, I would entirely divorce the Govern- 
ment from the redemption feature, except that it might deem it wise to 
keep the Government as an agent. The Government, of course, would 
redeem in gold the legal tenders deposited when the bank ceased to do 
business, or sooner if it was deemed wise and the Government was 
financially able to so do. 

Mr. Cox. Our minds are evidently both on the same point. The 
greenbacks are placed in there — I call them greenbacks — for the redemp- 
tion of bank notes when a bank goes into liquidation either voluntarily 
or involuntarily. Now, the bank has deposited that and has had its 
50 per cent of these notes. Does the Government again surrender 
these greenbacks for the purpose of redeeming those bank notes? 

Mr. Eckels. No. My idea would be that the Government would 
then destroy these greenbacks after redeeming them in gold. The 
Government would simply substitute to the bank gold for these green- 
backs and cancel the Government notes. 

Mr. Ellis. Is not the Government liable for the ultimate redemption 
of the notes'? 

Mr. Eckels. The Government would be liable for the redemption of 
50 per cent, because those were issued on promises to pay for which 
the Government is now liable. But the other 50 per cent would be 
redeemable to the extent of this safety fund. 

Mr. Cox. And the assets of the bank! 

Mr. Eckels. Yes. 

Mr. Ellis. The plan of the Secretary does not contemplate the ulti- 
mate cancellation of these greenbacks, while your plan does. 

Mr. Eckels. I think you are mistaken there. The Secretary con- 
templates the ultimate redemption of them, but through use of the 
surplus revenue of the Government. On the issuance of a certain 
number of bank notes a certain number of legal-tender notes shall be 
canceled. 

A Member. I want to know what the practical difference is. 

Mr. Eckels. The difference is that under the plan of the Secretary 
of the Treasury if a bank wants to reduce its circulation it can with- 
draw its legal tenders. My idea is that when legal tenders come in the 
bank could not take them out again. Whatever reduction a bank 
would make in circulation it would have to be of its safety fund. 

A Member. Do you not understand that the plan contemplated by 
the Secretary is that the bank shall then regain this 50 per cent when 
it liquidates ? 

Mr. Eckels. Oh, certainly. 

A Member. His plan puts it back in circulation, while your plan 
destroys it, as I understand. 

Mr. Eckels. But upon the other hand, his expectation is that out of 
the reserve of the Government there shall be the notes taken for redemp- 
tion and cancellation. You can not rush the plan into operation. Of 
course it will have to come into operation gradually. If the banks 
deposit the 50 per cent of legal tenders and take the bonds you would 
immediately lock up .$340,000,000 out of $498,000,000, and if the reserve 
fund is kept, of course a certain percentage of legal tenders, though not 
so large as at present, will be kept in the reserve against deposits. On 



74 NATIONAL CURRENCY AND BANKING SYSTEM. 

the other hand, I think the Secretary, in his report, figures that if all 
the national banks would take out circulation and the State banks 

Mr. Walker. Give us the figures on national banks first. 

Mr. Eckels. If all the national banks would take out 75 per cent — 

75 per cent of $675,000,000 would be how much ? 
Mr. Walker. About $51 5,000,000. 

Mr. Eckels. And take 30 per cent of that. 

Mr. Walker. That would be about $155,000,000. 

Mr. Eckels. About that in round numbers. But that would con- 
template the keeping out all the time of 75 percent of the capital in 
bank notes. You would have to keep it out continually. If sufficient 
bank capital were invested in taking out notes to absorb all the legal 
tenders, under the plan suggested by. the Secretary, you would have to 
increase your currency and keep out all the time additional bank 
notes to the extent of about $875,000,000. 

Mr. Johnson, of Ohio. I want to ask whether the plan proposed by 
the Secretary of the Treasury would, in your judgment, furnish a flex- 
ible currency? 

Mr. Eckels. Yes; I think it would furnish a flexible currency. 

Mr. Johnson, of Ohio. What is the inducement? 

Mr. Eckels. As I have just told you, under the theory that if a 
bank note is immediately convertible into coin no dollar will stay out 
that can not be used in business. That gives it the flexibility. 

Mr. Johnson, of Ohio. Is it not true that where there are 3,700 banks 
it would be difficult to get at the notes of any one bank to present it? 

Mr. Eckels. That, as the Secretary of the Treasury says, is a mat- 
ter for discussion. I have just stated my views on the question. The 
whole question is whether the principle is correct. If that is correct, 
then there ought not to be much difficulty in working out the details. 

Mr. Sperry. I should like to inquire, Mr. Comptroller, what is the 
profit on circulation to a bank so as to induce it to put out circulation? 

Mr. Eckels. Please repeat your question. 

Mr. Sperry. I desire to get at your judgment as to the profits to the 
banks upon circulation so as to induce them to go into your scheme. 
You, as I understand, require $50, say, of legal tenders deposited with 
the Treasury. That having been done, you give the banks $50 more on 
their general assets. 

Mr. Eckels. Yes; I allow $100 of bank note issues for each $50 of 
Treasury issues deposited with the Treasurer. 

Mr. Sperry. How much would you consider a safe reserve for the 
redemption by the banks of the $100 outstanding? 

Mr. Eckels. I think 5 x>er cent is considered safe now for current 
redemption. 

Mr. Sperry. That would be carried in legal-tender money? 

Mr. Eckels. It would be part carried in gold coin. 

Mr. Sperry. W^ould you require gold coin as distinguished from 
other money? 

Mr. Eckels. Simply for this reason : Whenever you wanted to get 
money to pay trade balances with other countries you could get a cer- 
tain percentage reserve in gold coin and make the banks furnish that 
instead of the Government. That is the whole idea. We have got to 
have so much gold coin in order to settle international exchanges. 

Mr. Spp:rry. Would you require banks to redeem their issue in gold 
coin, or any part of it? 

Mr. Eckels. Yes; I do not think that the bank note would circulate 
at all unless it were redeemable in gold coin. 



NATIONAL CURRENCY AND BANKING SYSTEM. 75 

Mr. Johnson, of Ohio. It might be redeemable in silver. 

Mr. Eckels. Of course if you maintain the parity between the two 
metals you can use silver or gold. It all turns on that question. But 
in the meantime you have got to have it redeemable in that which is 
regarded by the greatest number of people in the world as the best 
money for carrying on business. 

Mr. Sperry. We are speaking of the proposition as it may be crys- 
tallized in the form of a statute. Would you require banks to redeem 
their circulation, or any part of it, in gold coin? 

Mr. Eckels. I have stated that 1 would. 

Mr. Sperry. The whole of it? 

Mr. Eckels. As long as there was any lawful money you might 
require it to be redeemed in lawful money. Of course, under the x>olicy 
of the Government to keep all of its issues on a parity, every issue is 
equivalent to gold, being convertible into gold on demand. 

Mr. Sperry. Would you require banks to redeem in lawful money, 
or would you limit them to redemption in gold coin? 

Mr. Eckels. As long as lawful money is out I would let them use 
part of it, and I would have part redeemed in gold coin. 

Mr. Sperry. What part? 

Mr. Eckels. I have stated that 50 per cent of their circulation 
should absolutely be redeemed in gold coin. This for international trade. 

Mr. Sperry. As a reserve to be held in the bank'? 

Mr. Eckels. For redemption purposes; 50 per cent of the reserve 
for redemption purposes should be in gold coin for this reason: That 
under the practice of the Government these notes are redeemable in 
gold coin. 

Mr. Sperry. If you require the banks to redeem in gold coin they 
must just carry gold coin for the purposes of reserve. If you allow 
them to redeem 50 per cent in lawful money and the balance in 
gold coin, then it seems to me they would have need to carry a certain 
per cent in lawful money and a certain other per cent in gold coin. If 
you allow them to redeem in lawful money I do not see how the banks 
will be able to carry a gold-coin reserve unless you require them to 
redeem part of their outstanding circulation in gold. 

Mr. Eckels. That is what I have been trying to explain, that I 
would compel them to redeem a part of their bank notes which are 
issued against legal tenders in gold coin, and for the reason given, viz, 
to settle international balances which must be settled in gold coin. I 
would compel them to that extent to redeem in gold coin, and to that 
extent the banks should carry gold coin, for the reason that whenever 
you want to settle international exchanges the gold could be obtained. 

Mr. Sperry. 1 am looking at the matter as an implied contract 
between the note holder and the bank itself. Xow, there is no distinc- 
tion between the $50 which the bank gets into circulation, predicated 
upon a deposit, and the other 850 which it gets upon its own credit. 

Mr. Eckels. But every bank, for the maintenance of its own credit 
and protection, will give the note holder whatever kind of money he 
may want. It will be obliged to do this for self-protection; and if it 
does uot do it, its neighbor will, and the result will be that the bank 
which does not thus maintain itself will be discredited. That will be 
regulated, I think, by competition. 

Mr. Sperry. Would you give the option to the national banks to 
carry a certain percentage to redeem in gold coin, or give the national 
banks the option of redeeming in lawful money? 

Mr. Eckels. I think the bank ought to be permitted to redeem in 



76 NATIONAL CURRENCY AND BANKING SYSTEM. 

lawful money, except a certain percentage; but I think it is rather a 
distinction Avithout a difference, because people know that they can 
take the lawful money and get the gold with that. 

Mr. Sperry. I know, but they can not always conveniently do that. 
I am speaking now as to the matter of the rights of the note holder as 
against the bank when you put those rights into the rigid form of a 
statute. What are the rights of a note holder, under your system, in 
relation to redemption f 

Mr. Eckels # . The same rights that are now the rights of the holder 
of any legal tender who is dealing with the United States Government 
relative to the redemption of such Government issues. 

Mr. Sperry. Then the bank may redeem in silver, for instance? 

Mr. Eckels. If it does redeem in silver, and silver is not on a parity 
with gold, I do not think the bank would have very much business to 
transact afterwards. 

Mr. Sperry. All that I want to know is whether the note holder 
would have the right to demand a certain percentage redeemed in gold, 
or whether he would be obliged to allow his notes to be redeemed in 
lawful money to a certain percentage'? 

Mr. Eckels. I think he could demand a certain percentage to be 
redeemed in gold. 

Mr. Sperry. Then on that point you distinguish between the dif- 
ferent legal- tender moneys? 

Mr. Eckels. You might term it a distinction, but in practice you 
would iind that all the banks would give to the note holders whatever 
sort of money the note holders wanted ; and it would be on the ground 
of self-protection because if banks did not do so the issues of those 
banks would be discredited. I think it is safe to rely upon the banks 
looking out for themselves, and thus regulating this matter. 

Mr. Walker. I should like to ask the Comptroller if the banks, 
under his suggestion as to what the law should be, would not be placed 
in the same identical position that the United States Treasury has 
been in up to this time — that the banks and Government, by great 
commercial and economic laws, should pay what they agreed to pay. 

Mr. Eckels. Yes; I think so, with this difference: That the managers 
of banks would not be hampered by the same laws that do not give 
the Secretary of the Treasury necessary powers incident to what he is 
called upon to do. People in other lines of business are not hampered 
in that way. 

Mr. Walker. Let me ask this second question: Is it not a fact 
that when gold is taken out of the United States Treasury it goes into 
the possession of parties other than the Government, and many times 
into foreign countries, while in the case of a bank there is no inducement 
to draw it except for shipment. It is deposited in another bank at once, 
which places it again within the redemption circle, whereas, when it is 
taken out of the United States, it is gone forever, so far as the United 
States Treasury is concerned? 

Mr. Eckels. Yes; because people do not want gold coin. They pre- 
fer paper, as being more convenient. People really do not want to 
carry coin around with them. Therefore the whole thing turns upon 
the belief of those who are dealing with the bank, in the ability of the 
bank to maintain its credit and give them coin, if at any time they 
should desire to exchange the bank's paper promises to pay, for coin. 
It is just as if I were dealing with any one of you. I would not take 
your promise to pay unless I had a feeling that you would pay, and 
especially I would not take it payable on demand unless I felt that 



NATIONAL CURRENCY AND BANKING SYSTEM. 77 

any day, whether to-morrow or a year from now, I could go to the one 
who had given me such note and receive from him the money due on 
the note. All these notes of banks are promises to pay on demand. 
That which will give them currency among the people is whether or 
not when demand is made the person who issues them, whether it be 
a corporation or an individual, will meet that demand. 

Mr. Johnson, of Ohio. You promised to answer a question that I 
asked you awhile ago, but did not do it. 

The Chairman. As to whether these notes should be receivable for 
Government dues. 

Mr. Eckels. I would arrange it by percentages, because at present 
the legal tenders, as I understand, are accepted for dues. 

Mr. Johnson, of Ohio. So are national-bank notes. 

Mr. Eckels. Ko, not for customs dues. 

Mr. Johnson, of Ohio. They are for internal revenue. 

Mr. Eckels. Oh, yes. 

Mr. Johnson, of Ohio. Would you still do that ? 

Mr. Eckels. Yes, and I would have a certain percentage, basing it 
upon the amount of legal-tender notes issued by the Government, 
accepted in payment of customs, because they would be equivalent to 
gold, being based on legal tenders or Treasury issues, which are on 
demand always redeemed in gold at the Treasury. 

Mr. Warner. I believe that you suggested, Mr. Comptroller, that 
the 50 per cent deposit of legal- tender notes was not, in your opinion, a 
necessary security to the currency ? 

Mr. Eckels. I do not think it is necessary 

Mr. Warner. It is an alternative between raising money by taxa- 
tion to retire the greenbacks and 

Mr. Eckels. Yes, and I think that- 



Mr. Warner. I have not come to the point yet, quite. Now, is not 
the requirement of that deposit of 50 per cent just so much of an 
obstruction to the free development of the currency and to just that 
extent a tax upon borrowers'? 

Mr. Eckels. I hardly think so; but suppose you get dollar for dollar 
in exchange for it for loaning purposes ? 

Mr. Warner. If you tie up just that amount of money as a condition 
to getting dollar for dollar, is not that just so much of a tax upon the 
money which you do get"? 

Mr. Eckels. Yes; but the idea is with a great many people that 
these legal tenders ought not to be in circulation at all; that those evi- 
dences of debt ought to be gotten out of the way. Under the plan sug- 
gested there is no contraction or expansion in the present volume of 
currency. There is another consideration: I said it was perfectly safe. 
I have no doubt but that it would be perfectly safe. But as I have sug- 
gested, you must teach the people, all classes of people — you have 65,000,- 
000 of people to deal with, scattered all over the country — and he 
majority of those who are in business have never known anything but 
a bank-note currency which is dollar for dollar secured. Now, the prac- 
tical question is whether you can make so much of a change from the 
existing order of things and yet retain the confidence of the people in 
your notes. It is not a sentimental question, it is a practical question. 

Mr. Warner. Let me put it in another shape. Do I understand, 
then, that the alternative is to put a tax upon wealth to pay oif the 
greenbacks, or a tax upon borrowers in order to carry them"? 

Mr. Eckels. I think it would be a tax on borrowers, if your prem- 
ises are correct. But I do not admit the correctness of the premises 
you state. 



78 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Warner. Is that not the fact? 

Mr. Eckels. Possibly it is. 1 have no doubt that if the people could 
thoroughly appreciate the expense that is now incident to this system 
of things, as they will appreciate it if you issue an interest-bearing 
bond every four months to the extent of $50,000,000, they would see 
that the expense on that side is a great deal harder burden than what- 
ever additional expense in the way of interest on this side would be. 

Mr. Warner. Instead of taxing wealth to pay the greenbacks we 
are taxing the borrowers to carry them*? 

Mr. Eckels. Yes. 

Mr. Culberson. I do not understand the proposition that way. 

Mr. Warner. I am perfectly willing, if I had the time, to explain 
it, but I do not wish to intrude on the time of the committee to 
explain it. 

Mr. Culberson. I do not think the Comptroller has made that 
assertion. 

Mr. Eckels. There is one otner thing. I hope the committee will 
pardon me iff make too many suggestions, but there is one thing which 
I think worthy of consideration in connection with the present system, 
and that is its uniformity of supervision. I am not saying anything 
now about the note issues, but simply about the uniformity of super- 
vision. A great many people have a surpjus of capital which they can 
not use to advantage in the communities in the East, and the Middle 
and the other States where the systems are older than in the North- 
western and in portions of the South. The result of that has been this : 
That, understanding this uniformity and the general method in banking, 
there has been invested in banking capital in the West and in the 
South, by these people who had a superabundance Avhich they could 
not use profitably at home, a great amount of banking capital. That 
capital has been so much additional money to these places that needed 
it for the purpose of developing their natural resources. It has served 
the same purpose as if that amount of capital had been imported. In 
addition thereto, the establishment of such banks has educated the 
people of those communities up to the point of depositing in banks, 
thereby giving to such communities the benefit of an available capital 
which, but for the establishment of such banks, would have remained 
either in the pockets of the people or have been stored elsewhere. So 
that every dollar, as I stated before, is made to bear a great many 
transactions instead of but a single one. 

I have made several investigations because I thought they would be 
important to the Committee on Banking and Currency. One was to 
ascertain the number of depositors in the country having in banks sums of 
$1,000, under $1,000, and over $1,000, etc., and I found there were almost 
two million depositors in national banks and lour mil lion depositors in sav- 
ings banks; and adding the number of depositors in State banks would 
bring it up to about eight millionsof depositors. Then 1 made an investi- 
gation also as to the amount of checks, etc., used in retail transactions, 
and I found that there was about 55 per cent of purchases from grocers, 
clothing men, and all that sort paid by credit instruments. Then 1 made 
an investigation, orlookedup a former investigation that hadbeen made, 
as to the amount of capital which had been invested in the banking 
interests in the South, the West, and Northwest in national banking. 

Mr. Black. By whom? 

Mr. Ecklls. By people in the North and East. 

The evidence of the extent of this investment is found in the fact that 
in 1889 nearly one-third of the capital stock of 520 national banks in 



NATIONAL CURRENCY AND BANKING SYSTEM. 79 

Iowa, Minnesota, Missouri, Kansas, and Nebraska was contributed by 
Northern and Eastern stockholders, while in Dakota, Idaho, Mon- 
tana, New Mexico, Utah, Washington, Wyoming, and Arizona more than 
one-half of the capital stock of 144 national banks was held by nonresi- 
dent shareholders. In the States of Virginia, West Virginia, North 
Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, 
Louisiana, Texas, Arkansas, Kentucky, and Tennessee, of the shares 
of 410 national banks, a little more than one-sixth of the total was held 
by nonresident shareholders. 

Simply to show to what extent capital has been brought into these 
places in order to develop them, I think this is an important consider- 
ation in dealing with the banking question. 

The Chairman. One gentleman invited by the committee to present 
his views, Mr. Lackland, president of the Boatmen's Bank, of St. Louis, 
has sent a brief communication stating his views. If there be no objec- 
tion the Chair will hand it to the reporter to be printed in lieu of 
reading. 

Mr. Johnson, of Indiana. Why not have it read to-morrow? 

The Chairman. It will be inserted in the proceedings if there be 
no objection. 

There was no objection, and the letter referred to is as follows: 

Boatmen's Bank, 
St. Louis, December 8, 1894. 

My Dear Sir : I have yours of 6th instant, and regret very much that I can not 
appear before your committee in Washington City. I have very decided views on 
the currency question, and will preface this by saying that I have been in active 
business since 1837, and have experienced all the ills of State-bank money. 

I don't approve of any of Mr. Carlisle's bill for many reasons. The first is that I 
don't think any bank ought to be allowed to issue paper money. Why should a 
bank be allowed to put forth their bills payable as money any more than any other 
corporation or capitalist? In my opinion, it is giving an undue advantage to the 
banks. Nothing ought to be allowed to pass as money without the broad seal of 
the Government. It is a function that belongs exclusively to the Government and 
ought not to be delegated to any other source. They have all the machinery for 
protecting the people against counterfeiting; besides, are equipped with sub- 
treasuries and strong boxes thief proof, which afford absolute security, besides the 
promise and ability of the Government to redeem all its pledges. 

My idea of a perfect currency is very simple and could be easily accomplished. 
In the first place, have all the tariff revenue paid in gold; then Congress authorize 
the Government to issue one thousand millions of legal tender notes, no note under the 
denomination of five dollars. This issue to be legal-tender and payable in gold at 
any of the subtreasuries of the United States cm demand. With this issue redeem 
all the outstanding silver certificates, gold certificates, legal tenders and national- 
bank notes, as to have but one currency, then have the Government accumulate 
$250,000,000 of gold, and this, together with the silver now in the subtreasury, to be 
held for redemption of this new issue. This, in my opinion, would be the very per- 
fection and simplicity of the whole subject. 

A good deal has been said in regard to the elasticity of currency. In my opinion 
this is a delusion. The object of this is when the cotton or other crops come to 
market that this expansion takes place to move the crops. Now the theory of this is 
when the crops are marketed that this currency will be returned to the banks and 
there lay idle six months until the crops are ready again for market. Now anybody 
conversant with banking business knows very well that a banker is never so unhappy 
as when he has a surplus of money on hand, consequently that money will be used, 
and when the crops come along they will be suffered to take care of themselves. 
My experience is that when the crops come forward the money will be found to move 
them. Another point in the elasticity of currency is made that it can be available 
in panics. No legislation can prevent panics. They come, I may say, as a necessity, 
to purify the commercial atmosphere, and are the accumulation of years of prosperity, 
and are one of the financial laws for the settlement and readjustment of things, and 
will occur, in the very nature of things, in spite of any proposed relief. 

I have hurridly set forth my views, without any elaboration, and you can take 
them for what they are worth; but in my opinion they are worth consideration, for 



80 NATIONAL CURRENCY AND BANKING SYSTEM. 

I regard this as one of the most important subjects now agitating the public mind. 
To adopt Mr. Carlisle's theory of banking would be a step backward, and I would 
regard it as one of the greatest calamities that could befall this country. 
Very truly, yours, 

R. I. Lackland. 
Mr. S. W. Cobb, M. C, 

Washington, D. C. 
Mr. Parsons is out of the city, and I cannot find any other banking gentleman chat 
can spare the time to go to Washington City. 

The Chairman. There being no other business before the committee 
this evening, the committee will now adjourn, to meet at 10 o'clock 
to-morrow morning, for the purpose of continuing this hearing. 

Thereupon, at 4.12 o'clock p. in., the committee adjourned. 



Washington, D. 0., Tuesday, December 11, 1894. 

The committee met at 10 a. m. 

Present — The chairman (Mr. Springer), Cobb of Missouri, Ellis, 
Cobb of Alabama, Warner, Johnson of Ohio, Black, Hall, Walker, 
Brosius, Henderson, Tvussell, Haugen, and Johnson of Indiana. 

The Chairman: Gentlemen of the committee, we had expected that 
the Secretary of the Treasury would be here at this time, but as it is a 
little late and time is passing rapidly, I suggest that we shall proceed. 
I have asked Mr. Horace White, of New York, to address the committee. 
In pursuance of authority conferred on the Chair, I addressed a letter 
to Mr. White, and he has kindly accepted the invitation, and is now 
here. After he has concluded his remarks Mr. Hepburn and Mr. 
Horner will address the committee. 

Mr. Hall. Will the same plan be followed to-day as was followed 
yesterday with reference to Mr. Eckels'? 

The Chairman. The Chair was goiug to suggest that we follow the 
same plan as we did yesterday, allowing gentlemen who address the 
committee to proceed in their own way without interruption. After 
they are through, any member of the committee can submit questions. 

The Baltimore convention, at which a plan was adopted last October, 
has had its proceedings printed; and, if there be no objection, it will 
be printed in the record of these proceedings. 

The Baltimore plan and the plan outlined in Secretary Carlisle's 
report are here printed in parallel columns: 

THE BALTIMORE PLAN. SECRETARY CARLISLE'S PLAN. 

Section t. The provision of the na- I. 
tional banking act requiring the deposit 

of bonds to secure circulating notes here- Repeal all laws requiring, or authoriz- 

after issued shall be repealed. ing, the deposit of United States bonds 

Sec. 2. Allow the banks to issue circu- as security for circulation, 
lating notes to the amount of 50 per 

centum of their paid-up, unimpaired cap- U. 
ital, subject to a tax of one-half of 1 per 

centum per annum upon the average Permit national banks to issue notes to 

amount of circulation outstanding for an amount not exceeding-seventy five per 

the year, and an additional circulation of centum of their paid-up and unimpaired 

25 per centum of their paid-up, unim- capital, but require each bank before 

paired capital, subject both to the tax of rei eiving notes to deposit a guarantee 

one-half of 1 per centum per annum and fund, consisting of United States legal- 

to an additional heavy tax per annum tender notes, including Treasury notes 

upon the average amount of such circu- of 1890, to the amount of thirty per 

lation outstanding for the year; said ad- centum upon the circulating notes applied 

ditional 25 per centum to be known as for. This percentage of deposits upon 

"emergency circulation." the circulating notes outstanding to be 



NATIONAL CURRENCY AND BANKING SYSTEM. 



81 



Sec. 3. The tax of one-half of 1 per 
centum per annum upon the average 
amount of circulation outstanding shall 
he paid to the Treasurer of the United 
States as a means of revenue, out of 
which the expenses of the office of the 
Comptroller of the Currency, the print- 
ing of circulating notes, &c, shall he 
defrayed. 

The excess over one-half- of 1 per 
centum of the tax imposed upon the 
" emergency circulation" shall be paid 
into the " guarantee fund " referred to in 
section 6. 

Sec. 4. The hanks issuing circulation 
shall deposit and maintain with the 
Treasurer of the United States a " re- 
demption fund" equal to 5 per centum 
of their average outstanding circulation, 
as provided for under the existing law. 

Sec. 5. The redemption of the notes of 
all banks, solvent or insolvent, to be made 
as provided for by the existing law. 

Sec. 6. Create a "guarantee fund" 
through the deposit by each bank of 2 
per centum upon the amount of circula- 
tion received the first year. Thereafter 
impose a tax of one-half of 1 per centum 
upon the average amount of outstanding 
circulation, the same to be paid into this 
fund until it shall equal 5 per centum of 
the entire circulation outstanding, when 
the collection of such tax shall be sus- 
pended, to be resumed whenever the 
Comptroller of the Currency shall deem 
it necessary. 

The notes of insolvent banks shall be 
redeemed by the Treasurer of the United 
States out of the guarantee fund, if it 
shall be sufficient, and if not sufficient, 
then out of any money in the Treasury, 
the same to be reimbursed to the Treas- 
ury out of the " guarantee fund" when 
replenished, either from the assets of the 
failed banks or from the tax aforesaid. 

National banking associations organ- 
ized after this plan shall have gone into 
operation may receive circulation from 
the Comptroller of the Currency upon 
paying into the " guarantee fund" a 
sum bearing th© ratio to the circulation 
applied for and allowed that the "guar- 
antee fund " bears to the total circulation 
outstanding, and to be subject to the tax 
of one-half of 1 per centum per annum, 
as called for by the Treasurer of the 
United States for the creation and main- 
tenance of this fund. 

No association or individual shall have 
any claim upon any part of the money in 
said "guarantee fund" except for the 
redemption of the circulating notes of 
any insolvent national banking associ- 
ation. Any surplus or residue of said 
"guarantee fund" which may be here- 
after ascertained or determined by law 
shall inure to the benefit of the United 
States. 

Sec. 7. The Government shall have a 
prior lien upon the assets of each failed 

NAT CUR 6 



maintained at all times, and whenever a 
bank retires its circulation, in whole or 
in part, its guarantee fund to be returned 
to it in proportion to the amount of notes 
retired. 

III. 

Retain the provision of the law making 
stockholders individually liable, and pro- 
vide that the circulating notes shall con- 
stitute a first lien upon all the assests of 
the bank. 

IV. 

Impose a tax of one-half of one per 
centum per annum, payable semiannu- 
ally, upon the average amount of notes in 
circulation to defray the expenses of 
printing notes, official supervision, can- 
cellation, etc. 

y. 

No national-bank note to be of less 
denomination than ten dollars, and all 
notes of the same denomination to be 
uniform in design ; but banks desiring to 
redeem their notes in gold may have 
them made payable in that coin. The 
Secretary of the Treasury to have author- 
ity to prepare and keep on hand ready 
for issue upon application a reserve of 
blank national-bank notes for each bank- 
ing association having circulation. 

VI. 

Require each national-banking associa- 
tion to redeem its notes at its own office, 
or at its own office and at agencies to be 
designated by it. 

VII. 

To provide a safety fund for the imme- 
diate redemption of the circulating notes 
of failed banks, impose a tax of per 
centum per annum upon the average cir- 
culation of each bank until the fund 
amounts to five per centum of the total 
circulation outstanding. Require each 
new bank, and each bank taking out ad- 
ditional circulation, to deposit its proper 
proportion of this fund before receiving 
notes. When a bank fails, its guarantee 
fund held on deposit to be paid into the 
safety fund and used in the redemption 
of its notes, and if this fund shall be im- 
paired by the redemption of the notes of 
failed national banks, and the imme- 
diately available cash assets of such 
banks are insufficient to reestablish the 
fund, it shall at once be made good by 
pro rata assessments upon the other 
banks, according to the amounts of their 
outstanding circulation ; but there shall 
be a first lien upon all the assets of the 
failed bank, or banks, to reimburse the 
contributing banks. The safety fund 



82 



NATIONAL CURRENCY AND BANKING SYSTEM. 



bank and upon the liability of share- 
holders for the purpose of restoring the 
amount withdrawn from the "guarantee 
fund" for the redemption of its circula- 
tion, not to exceed, however, the amount 
of the failed bank's outstanding circula- 
tion after deducting the sum to its credit 
in the "redemption fund" (section 4) 
already in the hands of the Treasurer of 
the United States. 

Sec. 8. Circulation can be retired by a 
bank at any time upon depositing with 
the Treasurer of the United States lawful 
money in amount equal to the sum desired 
to be withdrawn, and immediately upon 
such deposit the tax indicated in sections 
2, 3, and 6 shall cease upon the circulation 
•so retired. 

Sec. 9. In the event of the winding up 
of the business of a bank by reason of 
insolvency, or otherwise, the Treasurer 
of the United States, with the concur- 
rence of the Comptroller of the Currency, 
may, on the application of the directors, 
or of the liquidator, receiver, assignee, or 
other proper official, and, upon being sat- 
isfied that proper arrangements have 
been made for the payment of the notes 
of the bank and any tax due thereon, 
pay over to such directors, liquidator, 
receiver, assignee, or other proper official, 
-fche amount to the credit of the bank in 
the "redemption fund" indicated in sec- 
tion 4. 



may be invested in outstanding United 
States bonds having the longest time to 
run. the bonds and the interest upon 
them to be held as part of the fund and 
sold when necessary to redeem notes of 
failed banks. 

VIII. 

Repeal the provisions of the reorgani- 
zation and extension act of July 12, 1882, 
imposing limitations upon the reduction 
and increase of national-bank circula- 
tion. 

IX. 

Repeal all provisions of the law requir- 
ing banks to keep a reserve on account 
of deposits. 

X. 

The Secretary of the Treasury may, in 
his discretion, use any surplus revenue 
of the United States in the redemption 
and retirement of United States legal- 
tender notes, but such redemption shall 
not in the aggregate exceed an amount 
equal to seventy per cent of the addi- 
tional circulation taken out by national 
and State banks under the system herein 
proposed. 

XI. 

Circulating notes issued by a banking 
corporation, duly organized under the 
laws of any State, and which transacts 
no other than a banking business, shall 
be exempt from taxation under the laws 
of the United States, when it is shown 
to the satisfaction of the Secretary of the 
Treasury and the Comptroller of the Cur- 
rency — 

(1) That such bank has at no time had 
outstanding its circulating notes in ex- 
cess of seventy-five per centum of its 
paid-up and unimpaired capital. 

(2) That its stockholders are individu- 
ally liable for the redemption of its cir- 
culating notes to the full extent of their 
ownership of stock. 

(3) That the circulating notes consti- 
tute by law a first lien upon all the 
assets of the bank. 

(4) That the bank has at all times 
kept a guarantee fund in United States 
legal-tender notes, including Treasury 
notes of 1890, equal to thirty per centum 
of its outstanding circulating notes; and 

(5) That it has promptly redeemed its 
notes on demand at its principal office, or 
at one or more of its branch offices, if it 
has branches. 

XII. 

The Secretary of the Treasury may, 
under proper rules and regulations to be 
established by him, permit State banks 
to procure and use in the preparation of 
their notes the distinctive paper used in 
printing United States securities ; but no 
State bank shall print or engrave its 
notes in similitude of a United States 
note, or certificate, or national-bank note. 



NATIONAL CURRENCY AND BANKING SYSTEM. 83 

STATEMENT OF MR. HORACE WHITfl. 

Mr. Horace White, of New York, proceeded to address the com- 
mittee. He said : 

After I had the honor of an invitation to appear before the committee 
last Sunday I put my views on the subject of the Baltimore plan in 
writing, and I will take the liberty of reading them to you. I will 
remark beforehand that the paper is only twenty-five minutes long, 
so that nobody need be dismayed at its possible length. 

Mr. Walker. I desire to ask Mr. White whether he has, in form, 
the draft of any bill which he approves, whether it includes the Balti- 
more plan or not. If he has I wish he would hand a copy of it to the 
committee. 

I understand that Mr. White, or some other member of the Baltimore 
convention committee, has formulated a bill including the Baltimore 
plan. If so, I should like to have copies of it presented now so that 
we may use it in our questions. 

The Chairman. Mr. W T hite can state how that is. 

Mr. White. I have drawn a bill which embodies my ideas of the 
Baltimore plan, but it has not been adopted by the Baltimore com- 
mittee, which consists of eight or ten gentlemen living in different parts 
of the country, and if I were to submit it now it would be only a pres- 
entation of my own views. 

Mr. Walker. I would like to have it. It may include the Baltimore 
plan or it may not, but it is Mr. White's views put into a bill. 

Mr. White. There are two other members of the Baltimore commit- 
tee here now, and I should like to act in cooperation with them in a 
matter of this kind. 

The Chairman. Mr. White may hand in his plan and it will be 
printed in the proceedings of the committee, 

Mr. Walker. Do we not want to see the plan while Mr. White is 
here? 

The Chairman. Mr. White says that he desires to consult with his 
associates. 

Mr. White. I will consult with them immediately after I get through 
with my remarks; and we shall save time in that way. Gentlemen, 
the Baltimore plan deals with only one part of the banking business — 
that of issuing circulating notes. It is often said that the issuing of 
notes is not a necessary function of a bank. It is true that a bank may 
exist without it, but a banking system without note issues comes far 
short of rendering to the community all the service that it is capable of. 

As money is an instrument of exchange, a bank is a machine of 
exchange. It consists of a guarantee fund called capital stock, and of 
the earnings of the community called deposits, which, together, form 
a body of assets. These assets are kept in a liquid state, or state of 
solvency, so that anybody having a claim against the bank can at any 
time draw it out in the form of money or realize it in the form of goods 
by giving his check. The condition that a bank must be in so that its 
assets shall always be " solvent" is determined by experience. Three 
banks still existing were started before the Federal Constitution was 
adopted. From that time to this the banks and the people have 
been learning by experience what things promote solvency and what 
things imperil it. The science of banking consists of all the means 
devised to preserve and maintain solvency. These are to be found in 
the history of banking and in the laws regulating it, which have been 
passed, amended, or repealed from time to time. 



84 NATIONAL CURRENCY AND BANKING SYSTEM. 

At common law any man may issne his promissory notes and circu- 
late them as money if people are willing to take them. But this is like 
the right to make or keep gunpowder or to sell liquor. It is the para- 
mount right and duty of the State to provide for the safety of the com- 
munity. Hence it may prescribe the regulations under which circula- 
ting notes shall be issued, or gunpowder be stored, or liquor be sold. It 
is not bound to give equal privileges to all persons to exercise these 
functions. It may authorize one bank of issue, or one powder mill, and 
no more. 

The evolution of banking in Massachusetts is one of the most inter- 
esting chapters in the history of the science. Little by little, from gen- 
eration to generation, the stones were laid of the edifice which is known 
as the Suffolk system. 

The wit of man from the earliest ages has been engaged (for the most 
part unconsciously) in finding means to exchange goods and services 
with the least expenditure of labor and capital. Since the precious 
metals are capital, and since the moving of them hither and thither 
requires labor, the system which reduces the use of them to the lowest 
terms consistent with safety is the best system. Under the Suffolk 
system anybody of good character who was engaged in a legitimate 
business could exchange his promissory note, running sixty or ninety 
days, for the notes of a bank payable on demand, and these notes would 
pay the wages of his employees or they would buy the raw materials of 
his trade anywhere in the United States or Canada. The notes were 
redeemed by the Suffolk Bank in Boston from day to day as fast as the 
course of trade took them thither. How were they redeemed 1 ? They 
were redeemed by the bills receivable of the issuing bank. The man 
who gave his sixty or ninety day note had by this time sold his prod- 
ucts or had received payment for a previous lot in a draft on Boston 
and had paid his note with the draft, and the bank was thus enabled 
to keep its balance good at the Suffolk. There was no limit to the work 
that the system would do. All years and all seasons were alike to it. 

The Suffolk Bank was a clearing house for country bank notes. Its 
managers originally conceived that a profit could be made by persuad- 
ing country banks to deposit money with it for redeeming their notes 
at par in Boston. As the country banks did not see any profit to them- 
selves in such an arrangement they refused. Then the Suffolk began 
to send their notes home for redemption. It secured the cooperation of 
five other Boston banks. The country banks had hitherto monopolized 
the field of circulation even in Boston. Their notes being at a discount 
more or less according to the distance and difficulty of reaching their 
place of issue, and not being received on deposit at par by the Boston 
banks, they would be paid out by everybody for purchases and thus 
kept in circulation. The Boston notes, on the other hand, would be 
promptly returned to the issuing banks as deposits or in paymeut of 
debts due to them. 

The six banks, headed by the Suffolk, soon began to make it hot foi* 
their country cousins by incessant calls for specie. The latter made a 
great outcry. They called the Suffolk syndicate "The six- tailed 
Bashaw " and other opprobrious names, but the run continued remorse- 
lessly until they began to come in and make the deposits required for 
a redemption fund. When they had once done so they found their 
credit so much improved that their notes had a wider circulation than 
ever and would stay out longer than before, because their circulation 
had a greater range. At the time when the Suffolk system was at its 
best I lived in Chicago. The notes of Massachusetts banks were in 



NATIONAL CURRENCY AND BANKING SYSTEM. 85 

great request there. They were considered the best currency going 
.and they bore a premium over the notes of Illinois and Wisconsinbanks. 

The Suffolk system of redemption was not made compulsory by law. 
It was voluntary, Lke the clearing house system in general. It sub- 
jected the goodness of all bauk notes in the range of its influence to a 
daily test. All the banks in the system were washed every day. This 
was very good for their health, but daily washing does not always pre- 
vent disease. A bank might become rotten while keeping up its 
redemption fund at the Suffolk, just as a bank may now become gradu- 
ally unsound while maintaining its position at the clearing house. 
Nevertheless, the Massachusetts system, taken altogether, realized the 
ideal of bank-note issues, in the sense of supplying machinery for 
swapping the goods and products of the country with the least 
■expenditure of labor and capital. 

Notwithstanding its abounding merits and great success, New York 
has exercised a wider influence on banking than Massachusetts or any 
other State. This has been due to two essentially different and even 
contradictory methods of note issues, known as the safety fund system 
and the free-banking system. The former began in 1829 and contin- 
ued till about 1860. The latter began in 1838 and still survives in the 
national banking act. The main question now before the country is. 
Which of the two shall prevail hereafter? Both systems aim to secure 
note holders, and both are adequate to that end. The question that 
-ought to engage attention is, which one corresponds most nearly in 
other respects the ideal of banking which was so nearly realized in 
Massachusetts'? That is to say, which one best answers the purpose 
of a machine for swapping goods and services with ease and regular- 
ity and with the minimum of expense? 

The safety-fund system was the invention of Josiah Forman, of 
Onondaga County, K. Y., who, in presenting it to Martin Van Buren, 
governor of the State, said that he had taken the idea from the organiza- 
tion known as the Hong merchants of Canton, China, all of whom were 
liable for the debts of each, and who had attained an incomparable 
credit by that means, no such thing as the failure of a Hong merchant 
being known. He did not propose, however, that all the banks should 
be liable for the debts of each, but merely that they should all con- 
tribute something to a common fund to provide for the redemption of 
the notes of failed banks. The contribution to the fund was to be one- 
half of 1 per cent annually on the capital of the participating banks 
until 3 per cent should be accumulated. 

The plan was adopted, but by a mistake in the framing of the law 
the safety fund was not limited to the redemption of the circulating 
notes, but was made applicable to all the debts of the failed banks. 
This accidental error led to mischievous consequences and brought the 
system into disrepute. Elderly bankers, who were in business while 
the safety fund was in vogue, have assured me that the system was a 
total failure, but when I have asked them for particulars they could 
1 not give any. They only spoke from general recollection that the fund 
was inadequate to meet the claims made upon it. That is true, but it 
means not that the annual contribution of one-half of 1 per cent was 
insufficient to redeem all the notes of failed banks, but that it was insuffi- 
cient to pay all the depositors as well. The fact is that it would have 
been sufficient to pay the notes of all the failed banks during the time 
the system lasted, with a considerable surplus over, if it had not been 
-diverted to other uses. 

Another mistake in the safety-fund law was that it did not provide 



86 NATIONAL CURRENCY AND BANKING SYSTEM. 

that the notes should be registered and countersigned by any public 
officer. The result of this omission was that there were over issues of 
notes, so that $700,000 of fraudulent ones came upon the fund and were 
redeemed out of it. Both of these mistakes were rectified by subse- 
quent legislation, but not until the system had been subjected to a 
severe strain and to unmerited obloquy. The upshot of the whole 
matter is that the safety- fund principle, apart from such infantile dis- 
orders, was a grand success, and although it was buried thirty years 
ago, at the place of its birth, is alive and in high esteem in a neighbor- 
ing country, and is now showing signs of revival at home. The system 
was adopted in Canada in 1890 in order to secure the prompt redemp- 
tion of the notes of failed banks, i. e., to avoid a discount on the notes 
of such banks pending liquidation. 

Under the Canadian system the circulating notes are the first lien 
on the assets, and it is believed that the assets will always suffice to 
redeem the notes, but the delay in converting them into cash, prior to 
the establishment of the safety fund, had led to a temporary discount 
on such notes. There is now in the Canadian bank circulation redemp- 
tion fund $1,800,000, and it is believed to be sufficient to meet all 
casualties of this kind. Under the Canadian law the Government is- 
not responsible for the notes of failed banks, but such notes draw 
interest at 6 per cent. The maximum amount of the fund is 5 per cent 
of the outstanding circulation of all the Canadian banks, and it must 
be kept up to this maximum, the minister of finance having power to 
call on the banks for additional contributions, when necessary, not 
exceeding 1 per cent in any year. When the assets of failed banks are 
paid in, however, refunds may be made to the contributing banks of 
the excess over 5 per cent. 

Under the New York safety-fund system all the capitahof the banks 
was applicable to the banking business strictly. This raises the ques- 
tion, What is the banking business? It is the business of working a 
machine of exchange, and thus dispensing with the use of the precious 
metals, as far as possible, substituting credit therefor. Bank credit is 
a general belief that what a bank promises to do it is able to do. When 
this belief becomes fixed, it is a great advantage all around to dispense 
with the use of the precious metals as media of exchange, and to keep on 
hand only sufficient to serve as a touchstone of the paper instruments; 
in other words, to keep the standard of value at hand merely for pur- 
poses of comparison. How much gold is required ibr this purpose? 
That is a question to be answered by experience in different cities, States,. 
and nations. I would not undertake to say how much is required in 
New York, or in Chicago, or in the United States as a whole, but I 
should say that we need a less percentage than the countries of Europe, 
because we are not exposed to the alarms of war, which are very disturb- 
ing to credit. 

I said that under the New York safety -fund system all the capital of 
the banks was applicable strictly to the banking business. It was not 
so under the free-banking system. That system had its origin in a polit- 
ical upheaval which began in 1835. Prior to this time the history of 
banking in New York had been largely a narrative of bribery, corrup- 
tion, and favoritism in the granting of bank charters. You will find 
all the details in Hammond's History of Political Parties in that State. 
I should like to give you some of them now, but it would take too much 
time. The long and short of it is, that there was a revolt in the Demo- 
cratic party against these abuses, just as there was a revolt against 
Tammany Hall the other day. The revolt of 1835 was also against Tarn- 



NATIONAL CURRENCY AND BANKING SYSTEM. 87 

many, and the seceders were called Locofocos. They are now called 
"Anti-snappers." 

The Locotocos began by fighting against bank corruption and mo- 
nopoly. As they progressed and gained strength, they enlarged their 
plan of campaign and attempted to reform the earth, and 1 honor them 
for it. They set the ball rolling for free trade, and whatever measure 
of success that doctrine gained in the North before the war was due 
chiefly to their impulse. They unhorsed the Democratic party in New 
York City, and although they did not get into the saddle themselves 
they produced so much alarm that the party took up the subject of bank 
reform seriously and passed a law to make banking free to everybody. 
In fact they rather overdid their job, for they allowed individuals as 
well as banks to issue circulating notes, and that law stands on the 
statute book of New York to-day. 

Now, bear in mind that the uppermost thought of the people in 1838 
was not good banking but equal rights, and the Avit of the legislature 
was exercised in devising a system which should meet a political rather 
than a financial exigency. The plan adopted was brought forward by 
Mr. Abijah Maun. It provided that circulating notes might be deliv- 
ered by certain State officers to banks or individuals who should deposit 
with said officers certain securities, worth at the time of deposit some- 
thing more than the par value of the notes. The system thus inaugu- 
rated had a checkered career, which it would take too much time to 
narrate. It harmonized so nicely with the American idea of equal 
rights and " a fair chance for everybody " that it spread like wildfire, 
and its effects in that part of the country where the chairman of this 
committee and myself lived in our younger days were very much like 
those of wildfire. They taught me the lesson that in securing equal 
rights in banking it is necessary to give some attention to the prin- 
ciples of banking. These were for the most part overlooked in the 
New York law, and they were wholly overlooked in the Illinois, Indi- 
ana, and Wisconsin imitations of it. 

The principle of credit, which is the vital principle of banking, was 
expunged from bank-note issues. What was substituted for it? Sim- 
ply this: That if a bauk would drop a dollar and ten cents into a slot, 
a dollar would drop out, which the bank could then lend to its cus- 
tomers. In other words, the bank's usefulness was paralyzed, on its 
note-issuing side, at the start. But, you saj^, security for the note 
holder was gained in this way. Not exactly. Your chairman and I, 
who saw the notes of the free banks of Illinois sold at a discount of 60 
per cent, and hardly any of them at a less discount than 10 per cent r 
know better than that. 

The testimony of Azariah Flagg, comptroller of New York, shows 
that the safety-fund system, with its little tax of one-half per cent per 
annum, furnished as mach protection to noteholders as did the 110 per 
cent of deposited security under the free-banking system. Why was 
this? Simply because under the former system the bank had the 110 
cents in its own vaults, i. e., employed in the discount of commercial 
paper, instead of being lodged in the State treasurers vaults at Albany. 
The true fund for the redemption of circulating notes is the sum total 
of the liquid assets of the bank, including its bills receivable. It is 
the same fund exactly as that out of which it pays the checks drawn 
upon it from day to day. 

The Baltimore plan provides for a guarantee fund of the same per- 
centage as under the Canadian law, and it makes the circulating notes 
a first lien on the assets of the bank. There is an outcry against this 



88 NATIONAL CURRENCY AND BANKING SYSTEM. 

last feature from soine people, who say that the poor depositors will suf- 
fer. But what is the condition of the poor depositors now? Are not 
the notes a first lien on the assets'? Are not the security bonds a part 
of the assets? Can any depositor get any part of this fund until the 
notes are paid in full? And, supposing that the bonds should ever fall 
short of paying the notes, could the depositor get any part of the 
remaining assets until the par value of the notes was deducted? Of 
course not. This outcry about the poor depositors is loudest in Boston, 
and it comes from persons who are probably not aware that the law of 
Massachusetts now, and from the earliest times, has made circulating 
notes a first lien on the assets of banks. This law was reenacted by 
Massachusetts in her last revision, that of 1880. I venture to say that 
if the 10 per cent tax on State-bank notes were repealed, Massachusetts 
would cling to this provision more tenaciously than ever, as she ought 
to. The same provision exists in the State constitution of New York. 

I see no objection to the repeal of the 10 per cent tax on State-bank 
notes, provided the State banks comply with all the requirements of 
the national banking law, and provided the means of enforcing these 
requirements are lodged with the Comptroller of the Currency. But a 
mere power of observation, without the power of enforcement, I should 
consider unwise, unsafe, and sure to cause embarrassment and to end 
in disaster. 

The Baltimore plan contemplates that the Government shall continue, 
as now, responsible for the redemption of bank notes. I consider this 
very desirable, although not indispensable. It is a provision in the 
interest of the public, not of the banks. The redemption clause of the 
present law was prompted by bitter experience of the losses incurred by 
delay in the redemption of failed-bank notes, even in cases where the 
security bonds were good and where redemption at par was reasonably 
certain. Of course the Government takes care that it shall lose nothing 
by the operation. It has the security bonds and the 5 per cent redemp- 
tion fund in its hands, in addition to which it holds a first lien on the 
assets and on the shareholder's liability to recoup itself for any possible 
deficiency. 

The redemption clause applies only to failed bank notes. It is no 
advantage to a failed bank to have the Government redeem its notes 
and then recoup itself out of the bank's property. The only benefici- 
aries of the provision are the people of the United States, since all of 
them are holders, more or less, of the national-bank currency. It 
may be said that the redemption clause is an advantage to the banks, 
because it gives a wider and more lasting credit to their notes than 
they would otherwise enjoy. This is true, but this, too, is for the 
public advantage. It is an inestimable advantage that the public are 
not put to any trouble in deciding whether a bank note is good or bad. 
The whole raison d'etre of a good banking system is a high state of 
credit — the higher the better. If this credit, is promoted by Govern- 
ment redemption of the notes and without pecuniary loss to the Gov- 
ernment that fact constitutes its sufficient justification. 

The Baltimore plan simply takes the law as it finds it. It adds 
nothing to it in this respect. It makes a change in the manner of reim- 
bursing the Government for the redemption of failed notes. The only 
question is whether the suggested change puts the Government to any 
greater risk. This is a question of mathematics. It is to be answered 
by the tables of bank mortality in the past thirty-one years. 

It has been said that there is no more reason why the Government 
should guarantee the notes of a bank than those of a merchant, a manu- 



NATIONAL CURRENCY AND BANKING SYSTEM. 89 

facturer, or a farmer. This would be true if the notes of the merchant, 
the manufacturer, and the farmer were allowed to circulate as money, 
but not otherwise. 

The analogy fails because the latter do not pass from hand to hand, 
all over the country, with the express authority of the Government. 
The right to issue circulating notes has generally been under govern- 
mental control, and ought always to be so. It is a corollary from this 
proposition that the Government ought not to allow anything to circu- 
late which is bad or doubtful. The steps which the Government takes 
to insure the goodness of the circulating medium are strictly in the 
public interest, and not in any private and corporate interest. To prove 
this it is only necessary to ask what would be the condition of affairs 
if it took no such steps. The history of the first half century of the 
Eepublic is full of mournful examples of unregulated or half-regulated 
banking. 

It may be said that the Government ought to reap the profit of the 
paper circulating medium. Conceding this to be true, the question 
remains, how can this profit be best secured? Experience has shown 
that Government profits are best obtained by means of a tax, not by 
entering into business competition with citizens. There is no objection 
to a tax on bank notes for purposes of revenue purely. We have 
always had such a tax. Nobody would desire to impose an excessive 
tax. It would be absurd to create a new system and kill it by the same 
act. It is submitted that all the advantages in the way of revenue that 
can be gained by Government issues can be gained equally by taxing 
bank notes, while the disadvantages under which we now labor will 
be avoided. The disadvantages are found mainly in the inflexibility 
of Government issues. These are a fixed sum. We can not make it 
greater without paving the way to indefinite expansion, dependent 
upon political majorities solely. 

Moreover, the existence of Government issues has thrown upon the 
Treasury the ungrateful task of maintaining the ultimate gold reserve 
of the country, and it has taught the people to look to the Government 
for relief in every case of monetary stringency. These evils are insep- 
arable from Government note issues, and they are certain to increase as 
time goes on, since there will soon be nobody on the stage of action 
who has known any other system. 

The retirement of the legal-tender notes was not included in the Bal- 
timore plan. It was probably deemed best not to ask for too many 
things at once, but I am decidedly in favor of their retirement. When 
I say retirement, I mean cancellation and extinction, not temporary 
withdrawal. 

Of course, cancellation implies either surplus revenue or funding into 
bonds; that is to say, it must be possible to meet the public expenses 
without paying out the legal tenders as they come in for taxes, or there 
must be authority to fund them as the floating debt of a railroad com- 
pany is funded. I should prefer the latter course, because it is the 
most certain and expeditious. I do not perceive the wisdom of hiding 
them away for a longer or shorter time, and thus giving occasion for a 
demand to pull them out of their hiding places and put them in circu- 
lation again. My reason for desiring the extinction of the legal-tender 
notes is that they are a constant menace to business interests. 

Business men are in a chronic state of alarm lest the Government 
should not be able to redeem them in gold, or lest a political party should 
come into power on a platform of not redeeming them at all. You can 
not have any real business stability while such apprehensions exist. 



90 NATIONAL CURRENCY AND BANKING SYSTEM. 

Moreover, the greenbacks teach people to believe lies. They create the 
belief that the Government can make money, than which a more damag- 
ing lie never gained lodgment in the human brain. They have kept 
political parties in hot water for thirty years and have obstructed the 
pathway for all other reforms. They are an obstacle to the national 
progress, and ought to be put out of their misery without further delay. 

I thank you, gentlemen, for your kind attention. Now, if any 
gentlemen wishes to ask me any questions, I will answer them if I can. 

Mr. Walker. I ask again that copies of Mr. White's bill be distrib- 
uted if Mr. White has them. 

The Chairman (to Mr. White). When would it suit your convenience 
to submit the bill which you have prepared? 

Mr. White. Probably now, if Mr. Hepburn and Mr. Homer agree. 

Mr. Homer (a member of the Baltimore committee). I would like to 
state, in explanation of this matter, that at the meeting of the American 
bankers' convention, at which the Baltimore plan was acted upon, a 
committee was appointed for the purpose of having prepared a bill 
carrying with it the underlying principles' of the Baltimore plan. The 
activity of this committee (the committee on banking and currency), 
and of the country, generally, on the question of currency, was, I must 
confess, rather a surprise to us, and it has caught us in the position of 
not being prepared, to-day, to present to you a bill in such form, and 
embodying those principles, properly worked out, such as the entire 
committee would like to submit. We are engaged in the preparation 
of such a bill. 

I can see no objection to Mr. White's handing in to you now the 
measure which he has taken the pains to prepare. What my own 
judgment would be, that, with the existing multiplicity of bills and 
ideas on this subject, those bills that carry out only in part the general 
Baltimore plan and the indorsed idea of the entire committee appointed 
by the American Bankers' Association, might only add to the existing 
confusion. I have not the remotest objection to the scrutiny of Mr. 
White's bill, but it will be handed in by him as his individual bill, and 
not as the bill of the American Bankers' Association. 

Mr. White. That is all right. 

The Chairman. The chair is of opinion that the members of the Bal- 
timore committee having the matter in charge should submit their 
formulated plan in their own way. There is plenty of time. Mr. White 
can submit the formulated plan at any time. 

Mr. White (handing several copies of his bill to members of the 
committee). I submit this as an embodiment of my individual views. 

Mr. White's bill is as follows : 

A BILL to amend the National Bank Act. 

Section 1. From and after the passage of this Act, no banking association shall 
be required to deposit with the Treasurer of the United States any United States 
bonds, either as preliminary to the commencement of the banking business, or for 
the security of circulating notes to be hereafter issued. 

Sec. 2. In lieu of the deposit of bonds as security for circulating notes hereafter 
to be issued, each national banking association shall be entitled to receive circu- 
lating notes from the Comptroller to the amount of fifty per centum of its paid-up 
unimpaired capital, as determined by the Comptroller of the Currency, upon paying 
to the Treasurer of the United States lawful money to the amount of two per centum 
of such circulating notes and thereafter a tax at the rate of one-half of one per centum 
per annum upon the average amount of its circulation outstanding for the year, 
which tax shall be additional to all other taxes whatsoever on bank notes. Said tax 
shall be collected in the month of January. The said two per centum and the pro- 
ceeds of said tax shall constitute a guarantee fund for the redemption of the notes 
of insolvent national banks, and the tax shall be collected until the fund amounts 



NATIONAL CURRENCY AND BANKING SYSTEM. 91 

to not less than five per centum of the entire circulation issued under the provisions 
of this act. This fund shall he in addition to the live per cent redemption fund 
now provided by law. No association or individual shall have any claim upon any 
part of the money in said guarantee fund, except for the redemption of the circu- 
lating- uotes of any insolvent national hanking association. Any surplus or residue 
of said guarantee fund which may he hereafter ascertained or determined by law 
shall inure to the benefit of the United States.! 

Sec. 3. In addition to the amount of circulating notes provided for in the fore- 
going section, each association shall be entitled to receive from the Comptroller circu- 
lating notes to the amount of twenty-five per centum of its paid-up unimpaired 
capital, upon paying to the Treasurer of the United States lawful money to the 
amount of two per centum of such additional circulation and a tax of one-half of 
one per centum per annum upon the average amount of the same outstanding for the 
year, payable as provided in section two, and an additional tax at the rate of four 
per centum per annum upon the average amount of such additional circulation out- 
standing for the year, all of which sums shall be a part of the guarantee fund afore- 
said: Provided, however, That any excess in said guarantee fund over the five per 
centum aforesaid, resulting from the tax on said additional circulation, shall belong 
to the United States. 

Sec. 4. The average amount of circulation outstanding, upon which the tax herein 
provided for shall be imposed, shall be the average amount of notes issued to the 
association and not held by, or in possession of, itself; and the highest amount out- 
standing in any month shall be taken in computing the average for the year. 

Sec. 5. When the guarantee fund shall be equal to five per centum of the entire cir- 
culation of all the banks outstanding, the collection of the tax of one-half of one per 
centum per annum shall be suspended, but the same shall be resumed whenever the 
guarantee fund shall fall below five per centum, and it shall be continued until that 
amount is again accumulated. Said tax shall be collected in the manner now pro- 
vided by law for the collection of the tax on the circulating notes of national bank- 
ing associations. 

Sec. 6. Whenever the insolvency of any national-banking association shall be 
ascertained in the manner provided by law, its outstanding circulating notes shall be 
redeemed by the Treasurer of the United States out of said guarantee fund, if the 
'same shall be sufficient, and if not sufficient, then out of any money in the Treasury. 
As the proceeds of its assets, including the personal liabilities of shareholders, are 
paid into the Treasury by the receiver, in the manner now directed by law, before 
any dividend shall be paid to depositors or any other creditors of the bank, the 
guarantee fund shall receive a sum equal to the outstanding circulation of such 
insolvent national bank as far as the proceeds of such assets permit. And the 
United States shall be first paid out of said guarantee fund, when replenished, for 
all advances made in pursuance of this section. 

Sec. 7. Associations applying for circulation after the first payments into the 
guarantee fund shall have been made may receive circulating .notes from the 
Comptroller of the Currency upon paying into said fund a sum bearing the ratio to 
the circulation applied for and allowed which the guarantee fund bears to the total 
circulation outstanding, and shall be subject to the tax of one-half of one per centum 
per annum, as called for by the Treasurer of the United States for the creation and 
maintenance of this fund. 

Sec. 8. The annual report of the Comptroller of the Currency to Congress shall 
embrace a statement showing the aggregate amount of money in the guarantee 
fund, the payments made into it during the year, the payments made out of it 
during the year, and the amounts, if any, advanced by the United Stntes for the 
redemption of the notes of insolvent banking associations and the repayment 
thereof. It shall be the duty of the Treasurer of the United States to furnish the 
Comptroller such information as he may request, in writing, from time to time, for 
the purpose of preparing said statement. 

Sec. 9. Whenever and so often as bank notes are issued to any association under 
the provisions of this act it shall be the duty of the Secretary of the Treasury to 
retire and cancel legal-tender United States notes and Treasury notes, to the amount 
of eighty per centum of the sum of bank notes so issued, as said legal-tender notes 
are received into the Treasury. And for this purpose he is authorized to use any 
surplus revenues from time to time in the Treasury not otherwise appropriated. If 
at any time the surplus revenues are not sufficient to enable the Secretary to carry 
out the provisions of this section, he shall resume the cancellation as soon as pos- 
sible and continue it until the said eighty per centum of United States notes shall 
have been extinguished. If at any time the amount of legal-tender notes in the 
Treasury shall not be sufficient to enable the Secretary to carry out the provisione 
of this act, he shall so report to Congress, and shall resume the" cancellation in ths 
ratio aforesaid as soon as practicable. 

Sec. 10. Any association may retire its circulation, or any part thereof, at any 



92 NATIONAL CURRENCY AND BANKING SYSTEM. 

time upon depositing with the Treasurer of the United States lawful nio^ey in 
amount equal to the sum desired to he withdrawn, and immediately upon such, 
deposit all taxes shall cease upon the circulation so retired. 

Sec. 11. In the event of the windiug up of the business of an association by 
reason of insolvency, or otherwise, the Treasurer of the United States, with the 
concurrence of the Comptroller of the Currency, may, on the application of the 
directors, or of the liquidator, receiver, assignee, or other official, aud upon being 
satisfied that proper arrangements have been made for the payment of the notes of 
the bank and any tax due thereon, pay over to such directors, liquidator, receiver, 
assignee, or other proper official the amount at the credit of the bank in the five 
per centum redemption fund. 

Sec. 12. Section nine of the act of July twelfth, eighteen hundred and eighty 
two, entitled 'An act to enable national banking associations to extend their corpo- 
rate existence, and for other purposes" is hereby repealed. Any association heretofore 
organized, desiring to withdraw its circulating notes, in whole or in part, may do 
so under the provisions of section four of the act of June twentieth, eighteen hun- 
dred and seventy-four, entitled 'An act fixing the amount of United States notes, 
providing for a redistribution of national-bank currency, and for other purposes;" 
but the clause of section four of said last-mentioned act, which provides "that the 
amount of the bonds on deposit for circulation shall not be reduced below fifty thou- 
sand dollars," is hereby repealed. 

Mr. Johnson, of Ohio (to Mr. White). Are you familiar with Secre- 
tary Carlisle's plan 1 

Mr. White. In a general way. I believe I have a copy of it in my 
pocket. 

Mr. Johnson, of Ohio. Under that plan, limiting the circulation by 
a deposit of legal-tender notes, is it not a practicable thing to have the 
issuing power absolutely monopolized by the present national banks — 
that is, if $225,000,000 of greenbacks are deposited for the present 
amount of their notes ? 

Mr. White. The greenbacks are put under a bushel, as I said. 

Mr. Johnson, of Ohio. Yes, put under a bushel. This reserve of 
$225,000,000 or $250,000,000 could be held by the national banks with- 
out expense, so that new banks would be debarred from getting hold 
of legal-tender notes for the purpose of issuing circulation thereon. 
Could not the national banks thus, under the Secretary's plan, monop- 
olize without any expense the issuing of national-bank currency — I 
mean the present banks with their present capital and present reserve ? 

Mr. White. I suppose that new bauks that desired to obtain cur- 
rency could get gold and deposit it. 

Mr. Johnson, of Ohio. The Secretary's plan does not provide for a 
reserve in gold. 

Mr. White. But the new banks could buy legal-tender notes with 
gold. 

Mr. Johnson, of Ohio. But the old banks could absolutely refuse to 
dispose of their greenbacks. 

Mr. White. That is hardly supposable. 

Mr. Johnson, of Ohio. My point was not whether it is likely, but 
whether it is not, in your judgment, a possible thing for the present 
banks to get hold of all the greenbacks and prevent new banks from 
getting currency? 

Mr. White. I think it may be physically possible. 

Mr. Johnson, of Ohio. Do you believe that Mr. Carlisle's plan would 
furnish a flexible currency — an elastic currency — so that there would 
be an incentive to enlarge the currency when business interests so 
required and to contract it when business interests so required? 

Mr. White. iSTo, sir; emphatically I do not. His plan requires the 
deposit of $30 for every $75 of national-bank notes. 

Mr. Johnson, of Ohio. The incentive to enlarge the circulation is 
there, but there is no incentive to reduce it. 



NATIONAL CURRENCY AND BANKING SYSTEM. 93 

Mr. White. My idea is that the lack of elasticity would result from 
the fact that a bauk would be obliged to put up $30 every time that it 
issued $75 in bank notes. I do not think that there would be any 
elasticity in that way. As to the returning of the notes that is another 
question. I should say that the notes would return to the issuing banks 
when they were no longer needed. 

Mr. Johnson, of Ohio. But an, elastic currency is one which will 
accommodate itself to the needs of business. 

Mr. White. A currency which will expand and contract, according 
to business requirements, is an elastic currency. 

Mr. Johnson, of Ohio. You do not think that the Secretary's plan 
furnishes such an elastic currency 1 ? 

Mr. White. I do not. 

Mr. Sperry. In what form of money does the Baltimore plan contem- 
plate the redemption of notes ! 

Mr. White. In the same way as now. 

Mr. Sperry. In any legal- tender money! 

Mr. White. Certainly, in any legal-tender money. The Baltimore 
plan is not an attempt to meddle with the legal-tender laws. 

Mr. Sperry. In your judgment, would it be best to have the redemp- 
tion required in coin ! 

Mr. White. Not until the Government money is all retired. I am 
opposed to any scheme for creating a premium on gold while your legal- 
tender money exists. 

Mr. Sperry. You think that the tendency of requiring coin redemp- 
tion of national-bank notes would be to put a premium on gold? 

Mr. White. Yes. The minute that the Government makes a distinc- 
tion between diffeient kinds of money the public will do the same. 

Mr. Sperry. Would the notes issued under the Baltimore plan sup- 
ply the place of other paper money! 

Mr. White. Only to the extent that there is a demand for them, over 
the Government issues. The Government issues are forced issues, and 
when there is a demand for more than the Government issues, the banks, 
under the Baltimore plan, will supply it. 

Mr. Sperry. Do you think that there is a tendency for every bank 
to innate its own bills'? 

Mr. White. It could not do it; it never could. I have studied that 
matter up from the bottom, beginning with the history of the Govern- 
ment, and 1 am convinced that a bank has no power to innate with its 
own notes if it redeems them in specie. 

Mr. Sperry. You think, then, that the bills of all the national banks 
would circulate under the Baltimore plan the same as now ! 

Mr. White. Yes; unless you change the law. The present law 
requires that all the banks receive the notes of every other bank. 

Mr. Sperry. Is that provided for under the Baltimore plan! 

Mr. White. The Baltimore plan does not disturb existing law in 
that particular. 

Mr. Sperry. It gives the legal-tender quality to bank notes. 

Mr. White. It makes them receivable for public dues, of course. 
They are not receivable for customs duties. 

Mr. Sperry. Supposing you took from the notes under the Baltimore 
plan that quality of legal tender, so that every bank would be compelled 
to receive the notes of every other bank! 

Mr. White. Then the notes would probably flow in for redemption 
faster than they do now, and the banks would be put to more expense 
in keeping their redemption fund full. 



94 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Sperry. You mean the redemption fund in Washington? 

Mr. White. Yes. 

Mr. Sperry. But the bills would circulate just as widely as they do 
now, would they not? 

Mr. White. Yes, I think so; just as the Canadian bills do in their 
own country. The Canadian law requires that every bank shall have 
one redemption agency in every province of the Dominion. 

Mr. Sperry. If the banks were required to carry a coin reserve 
instead of a legal-tender reserve, would not the tendency be to drive 
the greenbacks into the country 1 ? 

Mr. White. I do not see why it should. The greenbacks are as 
good as gold. 

Mr. Sperry. If the Baltimore plan should require the national-bank 
notes to be redeemed in coin the banks would be required to keep a 
coin reserve? 

Mr. White. Yes. 

Mr. Sperry. But as they now redeem in greenbacks they are com- 
pelled to keep a greenback reserve? 

Mr. White. Yes. 

Mr. Sperry. If the national- bank currency were to be redeemed in 
coin would not the tendency of that be to drive greenbacks back into 
the Treasury? 

Mr. White. The Treasury is required to put them out again imme- 
diately. 

Mr. Sperry. But the banks would carry a coin reserve instead of a 
greenback reserve? 

Mr. White. Yes. 

Mr. Sperry. If the banks were to substitute coin as their reserve 
the $165,000,000 of greenbacks now held as a reserve would find their 
way back into the Treasury? 

Mr. White. They can only find their way back there by being taken 
in for taxes, and then the Government has got to spend them the next 
day for its expenses. I do not see the point of the inquiry. 

Mr. Sperry. The point of the inquiry was, that the greenbacks are 
now used as a reserve fund, and my suggestion was whether or not 
under the Baltimore plan national bank notes would not take the place 
of the greenbacks as a circulating medium to a large extent, provided 
they were redeemable in coin instead of greenbacks? 

Mr. White. I do not think so, because silver certificates circulate 
everywhere, and they are not receivable for customs duties. There is a 
legal discrimination there, and yet the silver certificates go everywhere 
with perfect ease, so that I do not see why the greenbacks should not 
continue to do so. 

Mr. Walker. As I understand you, this bill which you have pre- 
sented to the committee is submitted as your individual suggestion, to 
be acted on by the banking committee. 

Mr. White. It is a bill which I drew up as embodying my ideas of 
the Baltimore plan. 

Mr. Walker. If that bill were enacted into law would it, in your 
judgment, correct the financial and banking troubles of the country? 

Mr. W t hite. I think it would have that tendency. 

Mr. Walker. It is not a question of tendencies, but I want to have 
your idea as to whether it would do so or not? 

Mr. Wthite. I do not claim to be omniscient. 

Mr. Walker. 1 did not ask you to be omniscient, but I ask you 
whether it is your belief that it would do so? 



NATIONAL CURRENCY AND BANKING SYSTEM. 95 

Mr. White. Yes. 

Mr. Walker. It is your belief that this bill would correct the finan- 
cial troubles of the country? 

Mr. White. My belief is that it would create an elastic currency, but 
I do not undertake to say that it would cure all the ills of our financial 
system. I think it would tend to promote an elastic currency, and that 
is what the Baltimore plan aimed to do. 

Mr. Walker. Is that all that it aimed to do? 

Mr. White. I think so. 

Mr. Walker. Was that all the purpose of the bankers who met in 
Baltimore and formed the Baltimore plan — the purpose to create an 
elasticity of currency? 

Mr. White. That is my idea. 

Mr. Walker. Then it appears that the American bankers who met 
in Baltimore made no attempt to formulate any system which would 
correct the acknowledged evils of the financial system of this country? 

Mr. White. Except to create an elastic currency. 

Mr. Cobb, of Alabama. Without abandoning the element of uni- 
formity and safety, of course? 

Mr. White. Yes. 

The chairman suggested that questions by members of the committee 
should be made as pointed and brief as possible, the object being, he 
said, to obtain the views of gentlemen addressing the committee and 
not the views of members of the committee. But this remark, he said, 
did not apply, of course, to Mr. Walker. 

Mr. Walker (to Mr. White). I suppose that paper money, in order 
to be good money, must have the implicit confidence of the banking and 
commercial classes of the country, and the confidence of the people of 
the country and of the world that it shall be redeemed in coin? 

Mr. White. Yes; that is my idea. 

Mr. Walker. And the trouble to-day is that that is not the view 
entertained of our paper money? 

Mr. White. I said in my discourse that the business community was 
under the apprehension that the time might come when the Govern- 
ment would not be able to redeem its paper money in coin. 

Mr. Walker. And that is the feeling to-day? 

Mr. White. Yes; I think it is the feeling in this country and 
abroad — more especially abroad. 

Mr. Walker. Are you not absolutely of opinion that nothing can 
give this country a sound financial system that does not practically 
retire the greenbacks? 

Mr. White. Yes, sir; thoroughly. 

Mr. Walker. Does your bill demand that? 

Mr. White. Yes. 

Mr. Walker. Point out the section. 

Mr. White (reading). "Whenever, and as often as, bank notes are 
issued, it shall be the duty of the Secretary of the Treasury to retire 
and cancel legal-tender United States notes and Treasury notes to the 
amount of 80 per cent." That is copied from the resumption act of 
1875. 

Mr. Walker. How is he going to do it? 

Mr. White. I will go on and read. (Reading.) "For that purpose 
he is authorized to use any surplus from time to time, * * # and 
if, at any time, the amount of legal-tender notes in the Treasury is not 
sufficient to enable the Secretary to carry out this act he is to report to 
Congress and to resume the cancellation as soon as possible." 



96 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. That proposition is based, of course, on the existing 
condition of the revenue laws and of the Treasury? 

Mr. White. Yes. 

Mr. Walker. And when we are having a deficiency every month of 
several millions of dollars'? There is no immediate relief proposed in 
your bill ? 

Mr. White. No, there is not. 

Mr. Walker. Then it is not complete for that reason. That is to 
say, there is no practical provision in your bill for the retirement of 
greenbacks and Treasury notes % 

Mr. White. No. I said in my discourse that I was in favor of having 
the greenbacks funded into bonds. I did not put that into the bill 
because I thought it quite improbable that any political party would 
agree to it at the present time. 

Mr. Walker. If no political party would agree to it, no political 
party will agree to take any substantial and effective steps to correct 
the existing evils of the currency. 

Mr. White. I am not so certain as to that. I think that if a bill were 
before the public to redeem greenbacks out of the revenues the public 
would be more likely to swallow that bill than one for issuing bonds. 

Mr. Walker. Is not the exigency such that when this committee 
met, and when your banking association met, the whole country rose 
and said they wanted the matter corrected at once? 

Mr. White. The emergency is no greater now than it has been for 
sixteen years past, but public opinion is more pressing. 

Mr. Walker. Do you not think that the exigency is greater than it 
has been, and that this matter is culminating? 

Mr. White. No, sir; I think that the exigency culminated by reason 
of your revenues being less than your expenditures. I think that that 
is what brought the misery on the Treasury. 

Mr. Walker. If there is no immediate prospect of, and if your bill 
does not provide for, immediate work in correcting this evil by retiring, 
practically, greenbacks and Treasury notes, do you not think that the 
bill which should be passed by this Congress ought to make it for the 
interest of the banks to assume the current redemption of the green 
backs and Treasury notes until such time as they can be retired? 

Mr. White. If you could make it for the interest of the banks to do 
it I suppose it would be desirable. 

Mr. Walker. If a plan could be reduced to law by which the banks 
could make more money than they do now in issuing currency notes, and 
also in assuming the current redemption of the greenbacks, is it your 
opinion that that plan ought to be adopted, and adopted at once? 

Mr. White. I do not know what currency notes are. 

Mr. Walker. Do you know what bank notes are? 

Mr. White. Yes ; but you use two phrases, currency notes and bank 
notes, and that makes a distinction between them. 

Mr. Walker. My point is this: If a system could be devised under 
which the banks could make more money in issuing bank-note currency 
(promissory notes), plus their assuming the current redemption of 
greenbacks and the Treasury notes, do you not think that that plan 
ought to be adopted by Congress, if it is practicable and can be done? 

Mr. White. I would have to ask you what is meant by the banks 
redeeming greenbacks. 

Mr. Walker. I have not asked you that question. 

Mr. White. You spoke of the banks assuming the redemption of 
greenbacks. 



NATIONAL CURRENCY AND BANKING SYSTEM. 97 

Mr. Walker. Yes ; I mean if the banks could be induced to pay 
tli em in coin as they do a bank note. That is what I understand by 
current redemption. If it could be made to the interest of the banks 
so that they could issue notes against their own assets, and at the same 
time currently redeem all the existing Treasury notes and legal-tender 
notes — if that could be done, and if it could be made more profitable for 
the banks to do that than it is under the present system, do you not 
think that Congress should adopt that policy now'? 

Mr. White. Not unless the greenbacks are to be canceled. If they 
are to be paid out again every day I would not be in favor of it. 

Mr. Walker. My idea is that greenbacks are canceled every time 
that they are redeemed in coin. 

Mr. White.. I do not understand cancellation to be redeeming a note 
to-day and paying it out to-morrow. 

Mr. Walker. When a bank note is paid into a bank and redeemed 
in coin tbe practical effect of that is the same as if that bank note were 
burned up and another bank note issued in its place. 

Mr. White. Yes; I understand that; the bank not being responsible. 

Mr. Walker. But my idea is that the bank should be responsible, 
and that the greenbacks and Treasury notes which are assigned to 
each particular bank should be marked with the name for each bank. 

Mr. White. That would make such a complicated plan that I would 
not undertake to give an off hand opinion about it. 

Mr. Walker. Is it complicated if a bank takes from the Government 
,000 in bank notes, which it itself must redeem (precisely as it 
redeems tbem now), and at the same time is obliged to deposit $50,000 
in lawful money, and it is stamped on the back of these notes with red 
ink that the bank agrees to redeem those bills so marked? That is 
very simple and very practical, and these notes are just as easily iden- 
tified as the notes of the bank. Now, if it were made to the interest of 
the banks, so that the banks would make more money by disposing of 
all the greenbacks and Treasury notes, would you not think it advisable? 

Mr. White. No; I would not. 

The Chairman. The chair requests that members will confine their 
questions as far as possible to the matter immediately before the 
committee. 

Mr. Walker. As that is a criticism on my questions 

The Chairman. Not at all. 

Mr. Walker. My point was to show the defects of the Baltimore 
plan and the excellences of it. 

Mr. Hall (to Mr. White). I understood you to make the statement 
that under the plan suggested by the Secretary of the Treasury there 
was no elasticity of the currency provided for. 

Mr. White. I did not say quite that. I said that 1 thought that a 
requirement to put $30 of greenbacks under a bushel every time that 
$75 of notes are issued was not consistent with elasticity. I say it 
would be more elastic than it would be to require $114 to be put up 
for every $100 taken out. It would be more elastic by the difference 
between $30 and $114. That is all that I meant to say. 

Mr. Hall. The provisions in the Baltimore plan look to the issue 
of circulating notes to the amount of 50 per cent of the paid-up and 
unimpaired stock of a bank. The plan advocated by the Secretary of 
the Treasury provides for the issue of bank notes not to exceed 75 per 
cent of the capital stock of a bank, and requires a deposit of 30 per 
cent in greenbacks or in the Treasury notes of 1890. What is tne 
difference between these two plans on the point of elasticity. 

NAT CUR 7 



98 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. White. Just this : A bank is disabled to the amount of $30 which 
it put up for exercising the right of issuing notes to the amount of 
$75. 

Mr. Hall. You take the position that it is very important, on account 
of the gold being drained out of the Treasury by the bucket chain pro- 
cess now going on, to get the greenbacks where they can no longer 
be drained out of the Treasury. Under the Baltimore plan, as set forth 
in the circular issued from Baltimore, is there any way to stop that 
flow from the Treasury? 

Mr. White. No, sir; there is not. 

Mr. Hall. Is it not better, in the present condition of things, to 
adopt the plan of the Secretary which, as you express it, puts the green- 
backs under a bushel — covers up 30 per cent of them — and prevents them 
from being used as a drain on the Treasury for its gold? 

Mr. White. I ought to have stated perhaps (and my idea of the 
drain on the Treasury is this) that it is caused by a deficiency of revenue 
and not by the redemption and re-redemption of greenbacks, because 
that system has been going on for sixteen years and we never found 
any difficulty about it until the revenues of the Government fell below 
its expenditures. 

Mr. Hall. I understood you to say that so long as the greenbacks 
were outstanding they were a menace, and tended to impair the public 
credit? 

Mr. White. Yes; by acting on the imaginations of men; not other- 
wise- 
Mr. Hall. Would it not be well to put that menace under a bushel 
instead of leaving it, as you do in the Baltimore plan, out in the public 
gaze? 

Mr. White. Of the two methods I should prefer that most which 
would produce a surplus in the Treasury. That would very largely 
remove the menace which now acts on the imaginations of men. They 
see a deficit of $69,000,000 in one year and the draining of the gold reserve 
in consequence of that. That condition of things must necessarily act 
on the imagination of the public and lead many to apprehend disaster. 

Mr. Warner. You mentioned the subject of a tax on State- bank 
circulation. Does not any tax on bank circulation tend to restrict the 
elasticity of the currency and increase the rate of interest? 

Mr. White. Just the same as a tax on any business does. England 
levies a tax on Bank of England notes. 

Mr. Warner. Would not the requirement to put up 30 per cent 
or any other percentage of greenbacks or of any other securities, in 
order to issue national-bank notes, have the same effect? That is to 
say, that it would be a practical tax on circulation, and would increase 
the rate of interest and result in a loss of elasticity? 

Mr. White. Yes ; I think so. 

Mr. Warner. Then, as compared with your own suggestion — of 
funding the greenbacks into Government obligations, to be paid either 
now or some time by taxation — does not any plan which involves the 
depositing of Treasury notes as a condition of circulation involve a tax 
on the borrower in the shape of an increase of interest? 

Mr. White. Yes; indirectly that would be the effect of it. 

Mr. Warner. You referred to the fact that if similar requirements 
were put on State-bank circulation that are put on national-bank cir- 
culation the notes of State banks would be made equally safe. What 
did you mean by that? 

Mr. White. There is a clause in the national banking law which 



NATIONAL CURRENCY AND BANKING SYSTEM. 99 

allows any State bank to come into tlie national banking system to- 
morrow and avail itself of all the privileges of the national banking law. 

Mr. Warner. By becoming a national bank? 

Mr. White. Yes. I do not think it possible to have the State banks 
and national banks subject to two jurisdictions at the same time. 
What is going to happen when a State bank goes into insolvency? 
Can the Comptroller of the Currency do anything about it"? He can 
only sit back and observe what somebody else does, but the moment he 
attempts to do anything himself he comes in conflict with State laws. 

Mr. Warner. As we have just made a treaty with Japan recogniz- 
ing that its laws are those of a civilized nation, we rnight recognize that 
the laws of a State are on the same parity. As to the question whether, 
under the Secretary's plan, it would be possible for the present national 
banks to monopolize the circulation without any expense to themselves, 
I ask you is it not true that the suggestion of a premium on greenbacks 
would involve an expense to those banks if they did not sell their 
greenbacks and take advantage of the premium*? 

Mr. W^hite. I should think so. 

Mr. Warner. Is it true that it would allow them to monopolize the 
circulation without expense to themselves? 

Mr. White. All that I can say is that it might do so. That is one of 
those rather complicated questions in finance which can only be deter- 
mined satisfactorily by experiment. 

Mr. Warner. If the banks held the greenbacks, and still continued 
to hold them after they were at a premium, would not that involve 
expense to them? 

Mr. White. Yes ; of course. 

Mr. Warner. And could not any other party enjoy the same advan- 
tages that the banks had by taking greenbacks at par? 

Mr. Brosius. I understand that you think that if there is a necessity 
for getting rid of the entire issue of greenbacks the preferable way to 
do it would be to issue low-rate bonds, for the purpose of redeeming 
them and getting rid of them in that way, rather than putting them 
under a bushel? 

Mr. White. Decidedly. 

Mr. Brosius. Do you think that the chief difficulties which now 
afflict our people arise from a Treasury deficit, rather than from any 
imperfection in our existing banking system? 

Mr. White. I think that the immediate trouble lies in the Treasury 
deficit; but the chronic trouble lies in the other direction. 

Mr. Brosius. Then does your system or the Baltimore system 
relieve the difficulties which proceed from a Treasury deficit? 

Mr. White. The Baltimore plan attempts to cure the chronic trouble, 
not the immediate trouble. 

Mr. Brosius. The Secretary of the Treasury, in his report, in stating 
the conditions which now afflict the country classifies them as follows: 
First, the frequent presentation for redemption in gold by individuals 
and institutions; second, the foreign exchange being at the rate which 
makes it more profitable to export gold than to purchase bills of exchange, 
and thirdly, the vast accumulation at our financial centers and the gen- 
eral depression of business. I want to know whether the Baltimore 
plan, or your plan, or any other plan that you have cognizance of, is 
calculated to mitigate the evils arising from that condition of things so 
distinctly stated by the Secretary? 

Mr. White. I think not. 

Mr. Brosius. After you have attained all the safety and security 



100 NATIONAL CURRENCY AND BANKING SYSTEM. 

possible for making the assets of the bank liable for the redemption of 
its notes, is there not still a residue of risk which must follow somewhere 
of the bank note not being redeemed at all? 

Mr. White. Yes. 

Mr. Brosius. Do you not think that it promotes the efficiency of 
the bank notes and the public good by satisfying the public mind of 
the safety of bank notes to have the Government of the United States 
take that possible or speculative risk rather than to let it fall on the 
note holder himself? 

Mr. White. Certainly I do, and I stated that most emphatically in 
my discourse. 

Mr. Cox. Speaking of the State-bank system, if you were to put the 
same restrictions, limitations, and requirements on the State banks as 
are put on the national banks there would be no necessity for State 
banks at all? 

Mr. White. No; there would not be. 

Mr. Cox. But suppose you say, by proper legislation, that unless the 
State banks do certain things they shall be subject to the tax, but that 
in case they do the things required of them the tax will be released ; and 
suppose you confer jurisdiction upon the Government ot the United 
States to collect the tax if the banks do not comply with the require- 
ments, but that if they do comply with the requirements the Government 
of the United States has got nothing to do with them; what would be 
the objection to that? 

Mr. White. The difficulty is this. A bank complies with the require- 
ments to day; the Comptroller of the Currency looks over the pupers 
and says, u Yes; you have complied with those requirements;" but the 
bank does not comply with them to-morrow. W T hat, then, is the Comp- 
troller to do? You say he is to tax the bank, but the bank, in the 
meantime, may have gone to pot. 

Mr. Cox. If a State bank issues its notes to-day it is subject to the 
tax, but does the Government go every day to collect the tax? 

Mr. White. No. 

Mr. Cox. Would not the banks be subject to the enforcement of the 
tax if they violated the requirements, just like any other tax imposed 
upon any piivilege or right? 

Mr. White. Yes. 

Mr. Johnson, of Indiana. I understand your position to be this: That 
if the currency and banking system is to be revised, it is simpler and 
safer to have one uniform system under Federal control than to under- 
take the experiment of two systems, one under Federal control and one 
under State control. 

Mr. W^hite. 1 am in favor of one system. The second system would 
be really forty-five systems. 

The committee took a recess till 2 p. m. 

AFTER RECESS. 

The Chairman. Mr. Ellis, of Kentucky, desires the chair to recall 
Mr. White, as he desires to submit a question to him. 

Mr. Walkek. Mr. White had not concluded his testimony. He 
simply stood aside so that Mr. Carlisle might go on. I suppose there 
are a number of gentlemen here who would like to further interrogate 
Mr. White. 

The Chairman. The chair understood that Mr. White had concluded 
his statement, but if gentlemen desire to interrogate him further they 
can io so. 



NATIONAL CURRENCY AND BANKING SYSTEM. 101 

Mr. Ellis. Mr. White, I understood you to state this morning that 
you had examined the plan proposed by the Secretary of the Treasury? 

Mr. White. Yes; I have in a cursory way. 

Mr. Ellis. I wish to call your attention to one view of that plan, 
and ask your opinion upon it. It is section 5 of the bill, I believe, as he 
has prepared it. His plan proposes that notes may be issued by 
national banks to the amount of 75 per cent of their paid-up and unim- 
paired capital, but before issuing* such notes they will be required to 
put up 30 per cent. The bill also provides for a safety fund which 
shall amount to as much, perhaps, as 5 per cent. Then, in the case 
of a failed bank, it is provided that this guaranty fund, this 30 per 
cent, shall be transferred to the safety fund, and that out of that the 
notes of failed banks shall be paid; if that is not sufficient to satisfy 
the notes of failed banks, then the deficiency shall be made up by 
assessment upon all of the banks that have entered into the scheme. 
Now, the question which I wish to ask you is this : What, in your opin- 
ion, would be the effect of such provision as that? If every national 
bank is to be the guarantor of the notes of any other national bank in the 
country, would this system be acceptable? Would it be profitable, or 
would it be practicable, in your judgment? 

Mr. White. I think most of the banks would at first decline to enter 
into the system; but I think also that the wiser ones would imme- 
diately see that the redemption fund there would be far in excess of any 
amount that would ever be called for, and, therefore, probably they 
would come in gradually. But still I think their inclination at first 
would be to stay out. 

Mr. Ellis. There would be, you think, a disposition on the part of 
the banks to refuse to become guarantors of the notes of other banks. 

Mr. White. Yes; I think so. The Cauadian system provides that 
the banks may be assessed for the deficiencies of failed banks, but not 
in excess of 1 per cent in any one year. An arrangement of that kind 
would be, I think, very satisfactory in this country. People would see 
the amount of loss in any year, and they would look at the assets 
and see that the fund applicable to the payment of the notes of failed 
banks would probably be in excess of the demands made upon it 
and they would come in. But if it were required that they should be 
responsible for the whole amount in every case, then I think there 
would be more hesitation. 

Mr. Walker. At once responsible, I suppose you mean? 

Mr. Ellis. Yes; that is the provision of this bill, that they become 
at once responsible. (To Mr. White) : Is it your opinion that if such a 
provision were incorporated into a banking system it would be a 
success? 

Mr. White. I should be very doubtful about it. 

STATEMENT OF CHARLES C. HOMER. 

Mr. Charles 0. Homer, of Baltimore, was introduced by the chairman 
to the committee, and made the following statement: 

Mr. Chairman, I might preface my remarks by stating that I did not 
know what might be required of me here; and that, consequently, I 
have not prepared any special or set address to deliver before you. I 
inferred that the object of my citation was to explain to you, as far as 
lay within my power, the features of the Baltimore plan. 

I would say to you that the piojectors of the Baltimore plan have 
had no intention of formulating a general financial scheme which 
would grapple with all of the confusing elements that now exist in our 



102 NATIONAL CURRENCY AND BANKING SYSTEM. 

national finances. It was simply our intention to create a plan wliich 
would cure, or tend to cure, the chronic conditions that have arisen in 
our country in the past, and with which we will no doubt be met in the 
future; and, for the purpose of so improving and so perfecting the 
national banking system by providing it with amendments that this 
system, which is, I think, universally acknowledged as the best system 
that any country has ever had, may be able to grapple with those diffi- 
culties which it has been only partially able to meet in the past. 

The first requisite of a bank note is that it be secure. We have in 
our plan made the assertion that a bank note may be secure without a 
bond deposited for its guarantor. We have established this fact by 
statistics, and the arguments produced have been so convincing that 
the reception of this innovation upon the national banking system has 
been a matter of great gratification and satisfaction to its projectors. 

For nearly thirty years we have lived under the impression that no 
note could be absolutely secure unless there were held a Government 
bond of equal or more value, or some other bond of a like comparative 
value, as its sponsor. This idea has been removed, and the plan car- 
ries with it not only the indorsement and the assent of the leading 
advanced thinkers upon matters of finance, but it has, to our gratifica- 
tion and pleasure, received the indorsement of the highest financial 
executive officers of our Government. 

The second requisite for a good bank note is uniformity. It must 
have for its basis of credit a uniform system of safeguards, of legal 
protections thrown around it, of uniform examinations looking to the 
assets upon which its credit is based, and a uniform supervision by the 
Department as to the compliance of the officers of the institutions with 
the requirements imposed by law; and, above everything else, in my 
judgment, one head to give uniform interpretations to the laws as con- 
structed, in order that the same condition of affairs, the same decisions, 
the same rulings, the same determinations may meet each and every 
institution in whatever part of our country it may be located. We 
feel, no matter if the same universal law be applied to all of the States, 
that the interpretation of that law in forty-four or more different 
States will not have the same uniform effect and will not provide 
us with the same uniform safeguard that the one positive interpreta- 
tion of that law by the Comptroller of the Currency would have. 

It was, furthermore, our intention to so amend and to so broaden the 
national banking act that its doors would be open to each and every 
individual, to each and every corporation, which felt that the require- 
ments of his or its locality, or self-interest through profit, made it nec- 
essary to have circulation. 

We have endeavored to obliterate the feeling that has existed with 
reference to the national banks as enjoying advantages over State 
banking institutions, and I think, from the correspondence that I have 
had upon this subject with gentlemen at the head of leading State in- 
stitutions of our country, that among the thinking classes where they 
have intelligently investigated the trend of our amendments, they see 
that the barrier, or the jealousy, or whatever it may be termed, between 
State banks and national banks, under our suggestion, is purely imagin- 
ative and will disappear. 

If it be the wish of the committee I will hurriedly take up the lead- 
ing sections of the Baltimore plan. I repeat that I have not prepared 
any notes, and if I should grow tiresome upon any portion of it I will 
esteem it a favor if I am promptly stopped. 

Section 1 is the provision for repealing the requirement of a deposit 



NATIONAL CURRENCY AND BANKING SYSTEM. 103 

of bonds. It has been demonstrated beyond question that the best 
asset a bank can have for the redemption of circulation is its bills 
receivable maturing daily and being paid daily, furnishing the ready 
means more quickly perhaps for the purpose of redeeming its notes 
than would be offered by the possession of bonds seeking an uncertain 
market. 

Section 2 provides for the issue of 50 per cent of circulation under 
ordinary conditions, with a proviso for an increase of 25 per cent when 
emergencies justifying shall arise. Our statistical research demon- 
strated the. fact that a certain part of a good bank-note circulation is 
in a constant condition of absorption by the public; that there is a 
certain portion of that circulation to which the term of elasticity or 
nonelasticity is hardly applicable. It is in daily, in constant use. It 
is deposited in bank and is only a temporary withdrawal from the uses 
of commerce. It comes in to-day, it goes out to-morrow. The manufac- 
turer deposits with us to-day a large sum. His pay day being to-morrow, 
he withdraws it again for his business purposes. We are simply the 
custodians of it. It has not served its entire usefulness, and the simple 
fact of its redeposit in bank does not establish the fact that it is no 
longer needed by the community. 

We have felt that the elasticity of this part of our currency would be 
supplied by ordinary redemptions, constantly going on from day to day. 
As the Secretary of the Treasury stated in his remarks yesterday, they 
aggregate millions of dollars daily — we will say a million a day. We 
think this withdrawal would provide the elasticity desired or that might 
be required for that portion of our currency (the 50 per cent issue) which 
we permit under a nominal tax. 

We have felt, furthermore, drinking experience largely from the panics 
of 1873, 1883, and 1893, that the clearing-house certificate performs an 
effective service in staying the damaging effects of panics. We have 
placed that portion of our circulation under a heavy tax for the simple 
purpose that each and every bank, urged by the payment of this tax, 
would adopt the promptest means for so shaping the affairs of its cus- 
tomers and those dependent upon it, as well as its own condition, as to 
secure a prompt withdrawal of this circulation after it had served its 
purposes. 

There was a considerable difference of opinion at one time with refer- 
ence to the matter of taxation, and I think, borrowing an idea which 
appeared in the plan of the chairman of this committee, we considered 
the question of a graduated tax for the matter of emergency circula- 
tion. It was finally determined that the line of departure between the 
ordinary and the emergency circulation should be very sharply marked, 
in order that the conditions might be restored to their normal state as 
promptly as possible. A graduated tax for a part of the use of this 
extraordinary circulation would not be so effective, in our judgment, as 
a sharp and severe tax the moment we entered into an unnatural con- 
dition of affairs, and that it would be the aim and object of each and 
everyone to get back to the normal condition as promptly as possible. 

It has been stated that this large tax which we proposed to impose 
upon the emergency circulation would have to be borne by the unfor- 
tunate whose condition compelled him to borrow this money of the 
banks. I can only speak in this respect for our own city. I do not 
know of a single case, of my own knowledge, in Baltimore where more 
than 6 per cent was exacted from any customer by a bank during the 
year 1893. The tax of the clearing-house certificates, which was per 



104 NATIONAL CURRENCY AND BANKING SYSTEM. 

cent in Baltimore, was cheerfully borne by the bank availing itself of 
their use for the purpose of tiding the distressed depositor over his dif- 
ficulties. 

The next section simply refers to the tax for the purpose of defraying 
the expenses. A subclause of that section states that the excess over 
one-half of 1 per cent of the tax imposed upon the emergency circula- 
tion shall be paid into the guarantee fund referred to in section 6. The 
object of inserting this was that, of course, in such times and with such 
an increase of circulation, the risk to which the guarantee fund which 
we have provided was set out against would be increased naturally, 
and that whatever might arise from the extra tax imposed upon this 
circulation should be turned into the guarantee fund as an extra insur- 
ance risk, in order to offset the extraordinary demands that might arise 
against it through any failures during such critical periods. 

The banks issuing circulation shalJ continue the 5 per cent redemp- 
tion fund as we have at present. I think I am correct in stating that 
the experience of the national banking system has demonstrated the 
fact that 5 per cent upon the circulation outstanding, deposited in the 
hands of the Treasurer, has always proved more than ample to meet 
the redemption of national-bank bills. I believe that there has always 
been a large idle fund in the hands of the Government for the purposes 
of making these redemptions, and that the provision of 5 per cent which 
we have retained is ample for the purpose for which it was created. 

The fifth section states that the redemption of the notes of all banks, 
solvent or insolvent, is cobe made as provided for in the existing law, 
i. e., Government redemption. We have felt, that in order to establish 
a strictly uniform currency, and a currency in which the note holder 
might have the very fullest confidence, the redemption of all national- 
bank notes should be continued as at present by the Secretary of the 
Treasury. To protect the Treasury upon this score we, in section 6, 
create a guarantee fund, by which we require the deposit the first year 
of 2 per cent, and then an annual tax of one-half of 1 per cent, to be 
continued until this guarantee fund shall reach 5 per cent upon the out- 
standing circulation; to be then suspended, to be resumed, however, 
when impaired through the redemption of the notes of any failed banks. 

Taking the national -bank capital of to-day to be in round numbers 
$700,000,000, the average national- bank circulation outstanding (50 
per cent) would be $350,000,000. A guarantee fund (5 per cent upon 
that amount) would be $17,500,000. Investing this sum, as suggested by 
the Secretary of the Treasury this morning, at 3 per cent would yield 
an annual income to that fund of $525,000. 

The records of the Comptroller's Department show that in the first 
thirty years of the history of the national banks the entire loss that 
would have befallen this fund, had there been no bond for the pro- 
tection of the note holder, would have amounted to $953,000, a little 
more than $30,000 per annum. 

With an income, after investing, of $525,000 and with a liability only 
averaging $30,000 per annum, it strikes me that there can be no question 
as to the sufficiency of the guarantee fund which we have established. 

Mr. Walker. How much is the guarantee fund? 

Mr. Homer. $17,500,000 invested at 3 per cent would yield $525,000 
per annum. 

The next clause of that section provides for the redemption of the 
notes of failed banks by the Treasurer of the United States out of the 
guarantee fund, if it shall be sufficient, and if not sufficient, then out of 
any money in the Treasury, the same to be reimbursed to the Treasury 



NATIONAL CURRENCY AND BANKING SYSTEM. 105 

out of the guarantee fund when replenished, either from the assets of 
the failed banks or from the tax aforesaid. 

I think I have demonstrated with sufficient clearness that there can 
hardly ever arise a condition of affairs whereby the Government will 
be called upon to use any other funds in the redemption of the notes 
of failed banks than that which the banks themselves have provided 
in the creation of the guarantee fund. 

The next section provides, with reference to the contribution of 
national-bank organizations started after this plan shall have been in 
operation — that is so equitable that it requires no explanation and no 
argument — they shall pay into the guarantee fund a sum bearing the 
ratio to the circulation applied for and allowed that the guarantee fund 
bears to the circulation outstanding, and shall then be subject to the 
tax of one-half of I per cent per annum, as called for by the Treasurer 
of the United States, for the creation and maintenance of this fund. 

The next clause, which the Secretary of the Treasury has adopted in 
his plan, is that no association or individual shall have any claim upon 
any part of the money in said guarantee fund except for the redemp- 
tion of the circulating notes of any insolvent national banking associa- 
tion, and that any surplus or residue of any such guarantee fund shall 
enure to the benefit of the United States. 

Our purpose in providing that section was to prevent any bank from 
carrying upon its books as an asset its interest in this guarantee fund, 
and we were led still more into the adoption of this plan because after 
the dismemberment of the New York State guarantee fund there was 
endless litigation among the banks and with the State as to the owner- 
ship and the interest of the fund. So it was a question that we wished 
to set at once and forever at rest. It was a contribution to a fund for a 
specific purpose, and after that purpose had been accomplished it should 
no longer be a part of an asset of any bank, but should enure to the 
Government and belong to the Government absolutely and beyond ques- 
tion. 

The next section is the one covering the prior lien upon the assets. 
It has been very fully discussed here. 

The next section refers to the retirement of its circulating notes by 
a bank, at any time, upon depositing with the Treasurer of the United 
States lawful money equal in amount to the sum desired to be with- 
drawn. That is the existing law, without any change. 

The ninth section refers to the winding up of a bank, and is taken 
verbatim from the Canadian law. It says that in the event of the 
winding up of the business of a bank by reason of insolvency or other- 
wise, the Treasurer of the United States, with the concurrence of the 
Comptroller of the Currency, may, on the application of the directors, 
or of the liquidator, receiver, assignee, or other proper official, and upon 
being satisfied that a proper arrangement has been made for the pay- 
ment of the notes of the bank and any tax due thereon, pay over to 
such directors, liquidator, receiver, assignee, or other proper officials 
the amount to the credit of the bank in the redemption fund indicated 
in section 4. 

This refers only to the redemption fund, not to the guarantee fund. 

I think I have now given you a hurried review of the various sections 
of the Baltimore plan. 

I approach the plan of the Secretary of the Treasury with a great deal 
of hesitancy and diffidence, because he is the highest financial officer 
of our Government. But there are some features of it that my own 
experience and observation as a bank man can hardly permit me to 
assent to. 



106 NATIONAL CURRENCY AND BANKING SYSTEM. 

He requires a deposit of 30 per cent in the guarantee fund, in addition 
to the 5 per cent established by the Baltimore plan. 

I can not find that this demand is anywhere warranted by past expe- 
rience. Of course we know the motive. It is to relieve the Govern- 
ment from the responsibility of the redemption of a large portion of its 
own notes. 1 feel that the manly course of the Government, as it is of 
the individual, is to redeem its paper when it is looked at shyly, in 
order to retain its credit. 

Section 5 states that no national bank shall issue notes of a less 
denomination than $10. Per se, this is not objectionable, but it forces 
upon the people, in their interchange through business, an unneces- 
sary burden, as anyone who has carried around with him a pocketful 
of silver can testify to as well as I can. 

In section 6 the Secretary suggests that each national bank redeem 
its notes at its office or through its agencies designated by it. I 
believe the central redemption of national-bank notes, as it has been 
in vogue for the past thirty years, has given us ample proof that this 
is a perfectly businesslike and proper method for the redemption of 
national-bank circulation. 

If the Secretary is correctly reported in his discourse before you yes- 
terday, he made the statement that the redemption by the Government 
of the circulation of national banks was a tying up of money. Upon 
this head I can not agree with him. On the contrary, there is no tying 
up of money, but there is an untying of money, because the very money 
with which the Secretary redeems the circulation of bank notes has 
already been deposited and placed in his hands for that special and 
specific purpose, in the 5 per cen t redemption fund. A constant 
redemption of national-bank notes over the counter of each and every 
bank, or through its agency, would be a much more serious tying up of 
the circulating medium of our country than the redemption arrange- 
ment in existence to-day. Our currency would be locked up in the 
express offices. As it is now, we carry it to the subtreasury, or to the 
Treasury, and we receive at once for it a medium to take the place of 
that which we have deposited. 

Another feature that might be stated in objection to this is, Would 
it not be a hardship to first require the banks to deposit 30 per cent of 
lawful money as a guarantee fund for the payment and redemption of 
their paper, depriving them of so much of a ready and available asset, 
and then compel them, in addition to that, to redeem their notes over 
their own counter or through their agencies? We are stripping them 
of a part of the very thing which now insures j)rompt redemption of a 
bank note the moment it is presented at a bank counter. 

With reference to the assumption by the banks of the circulation 
ultimately of all national banks, I would state that I fear any such 
provision in the law might lead to hesitancy on the part of the most 
conservatively managed institution. The clause practically establishes 
a copartnership of one bank with the other, without any voice in the 
management or control of the institution whose paper it is bound to 
pay. No wise business man would enter into such a copartnership 
with an unlimited liability. 

It is one of the features that we have built upon, in the redemption 
of the notes by the Secretary of the Treasury, that the interest of the 
Government in the final redemption of the bank bill, although it is only 
a technical responsibility, is of such a character as to insure, on the 
part of the Comptroller of the Currency, a very rigid supervision and 
control over the banks which enjoy the benefit of the circulation. We 



NATIONAL CURRENCY AND BANKING SYSTEM. 107 

have in the Comptroller of the Currency a strong ally for the protec- 
tion of each and every one of us who has entered and who will enter 
into that copartnership. But to permit the bank to issue the circula- 
tion (without any desire to reflect) through mismanagement, through 
bad judgment on the part of the Comptroller in the selection of his 
staff of examiners and assistants, would rob this plan of one of the 
chief safeguards upon which we have relied in establishing the guar- 
antee fund. I feel that under proper management, under proper 
supervision, the safety fund which we have created is so much more 
ample to protect the Government from any loss whatever in the redemp- 
tion, and in the responsibility for redemption, of failed notes, that there 
is only a naked risk depending upon that guarantee. 

With reference to the Secrerary's provisions for State bank circula- 
tion, I have always felt that if we surrounded and required of the State 
bank desiring circulation the same safeguards, the same compliance 
with the law, the same deposit and securities, the same supervision, 
examination, and publication of reports, etc., there would be prac- 
tically nothing left of the State bank except the shell; that it would 
be a national bank in all of its features; and if we can so frame the 
national-bank law that the currency of this country will be uniform, 
we shall have accomplished a great step forward and shall have sup- 
plied a currency that will be, as it has been in the past, good every- 
where within the boundary and beyond the boundary of our country. 
If we do not exact from the State banks all of these safeguards and 
conditions we at once establish two kinds of currency, and I think that 
the education of our people in the matter of bank notes during the past 
thirty years has been such that they will hardly sanction retrogression. 
It is not necessary now to scrutinize any bill that we may receive. We 
know that it is good, and it is accepted without question. 

With reference to the exemption from taxation, etc., to be granted 
on State bank circulation, of course it is a discrimination. I do not 
wish to discuss that point. 

With that, gentlemen, I think I have finished. 

Mr. Warner. You suggest that the banks would shrink from the 
unlimited liability, which you compared to that of a copartnership, for 
circulation. Why, then, should not the Government shrink from it? 

Mr. Homer. Because the Government has the active control and 
supervision over those banks. Without that rigid scrutiny on the part 
of the Government the field is open for the creation of banks for 
questionable purposes, for the issuance of circulation upon which the 
entire national banking system would at once become responsible. 

Mr. Warner. Would it be proper to sum up your suggestion in this 
way: That in your belief the Comptroller of the Currency would exer- 
cise a sharper and more effective supervision if the Government were 
ultimately liable than if the banks were ultimately liable? 

Mr. Homer. It would. 

Mr. Warner. That is your position? 

Mr. Homer. Yes. 

Mr. Warner. Then the only extent to which the liability of the 
banks, from which they would, as you believe, shrink, and the liability 
of the Government, which you suggest it should assume, is the differ- 
ence between the extent and the effectiveness of the supervision which 
the Comptroller of the Currency would be apt to exercise in the one 
case, as compared with the other? 

Mr. Homer. That is my view. 



108 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Indiana. Public confidence in this matter is abso- 
lutely vital? 

Mr. Homer. It is. 

Mr. Johnson, of Indiana. Is it not more likely that the public 
will have confidence in this matter if it thinks the Government is 
ultimately liable than if the public feels that the Government is 
simply a mere custodian of the bank assets for the payment of these 
notes? 

Mr. Homer. It is. 

Mr. Warner. Upon the question of redemption, do I understand 
that it is your idea that the normal redemption, under the system you 
propose, shall be through the Bureau here at Washington, as it is now? 

Mr. Homer. Well, at Washington and the subtreasuries throughout 
the country. 

Mr. Warner. Practically as it is now? 

Mr. Homer. Practically as it is now. There is no change suggested. 

Mr. Warner. Is it not the case, however, that, as compared Avith 
what you might call normal redemption — if each bank were required to 
redeem its bills over its own counter, without any obligation on any 
other bank to receive any bills other than its own — the system you pro- 
pose would be very much less effective, and that redemption would be 
very much less prompt in case of a lack of demand on the part of the 
business of the country? 

Mr. Homer. The currency drifts to the financial centers. The finan- 
cial centers relieve themselves by depositing their national-bank notes 
with the subtreasury. That at once calls for the deposit of lawful 
money by the banks whose currency has been redeemed by the Secre- 
tary of the Treasury, and the notes are retired from circulation. If 
they can be used again in that locality, well and good; otherwise, they 
remain in the vaults of the banks. 

Mr. Warner. As a matter of fact, however, are not the amounts of 
redemptions and the rate of redemption very small under the present 
system, as compared with what they were and would be under any sys- 
tem leaving each bank simply to redeem its own currency? In your 
opinion, is not redemxjtion very small under the present system, as com- 
pared to what it used to be under the Suffolk system? 

Mr. Homer. Yes; it is small. There was this feature under the Suf- 
folk system : The Suffolk system required the daily redemption of notes. 
It prohibited the issuance, by any bank, of any note except its own. 
Applying this locally, it might prove very effective and beneficial. 
Spreading it out, however, throughout the entire country, would, in a 
very short time, create a currency famine such as has been unheard of in 
this country. The currency would be found in express offices, in transit 
from one point of the country to another, and we would have for use 
simply a few of our own notes that might come to us over our own 
counter. There would be, in my judgment, a vast tying up of currency 
for exchange medium by requiring the whole country to submit to the 
daily redemption of its circulation. 

Mr. Warner. In other words, if I understand you correctly, the Suf- 
folk bank system, or the natural redemption system, would leave cur- 
rency much more elastic, but in your view it might bring about a famine 
which would more than make up for the advantages ? 

Mr. Homer. Yes. 

Mr. Warner. But the system which you propose is defective, so far 
as the one point of elasticity is concerned, when compared with the 
other system. 



. NATIONAL CURRENCY AND BANKING SYSTEM. 109 

Mr. Homee. Of course there is not the same, elasticity about a note 
that is redeemed only at the central bureau without the requirement of 
a daily redemption. 

Mr. Warner. Your system is less elastic in that particular than the 
natural system of redemption? 

Mr. Homer. The point, I think, is stated in the explanation of the 
various clauses of the Baltimore plan, that a certain part of the circu- 
lation is in constant absorbtion — that is, in use — and does not require 
the elasticity or inelasticity to be applied to its whole volume, but only 
a certain portion of it. 

Mr. Johnson, of Indiana. Your plan contemplates that the existing 
national bank law shall continue intact, except as it is altered or 
repealed by it. 

Mr Homer. It is a continuation of the national banking act, with, 
the substitution of a lien upon assets for bond deposit. 

Mr. Johnson, of Indiana. Therefore, each bank under your system 
would receive the notes of other banks'? 

Mr. Homer. Oh, yes. 

Mr. Walker. I understand, from what was said by Mr. White, that 
the only item in what is known as the Baltimore plan that would affect 
the general finances of the country, aside from what the banks have 
looked out for in their own interests, is the provision that the surplus 
revenues shall be used to retire the Treasury notes? 

Mr. Homer. No, sir; we have not entered into any question with 
reference to national finances at all. Our aim has been to cure and cor- 
rect the defects in the national banking system. We have not grappled 
with that problem of finances. 

Mr. Walker. So that this convention of the bankers of the country 
has considered nothing except their own immediate banking busi- 
ness and what would benefit that business? 

Mr. Homer. Yes; we had no discussions, no conferences. 

Mr. Walker. Your deliberations were confined wholly to those pro- 
visions of existing law, and the provisions that you would like to have 
exist in the law, which would benefit the banking interests of the 
country? 

Mr. Homer. No; there were other things we should like to have had. 

Mr. Walker. Not what you would like to have had, but what your 
scheme embraces. 

Mr. Homer. Well, we felt 

Mr. Walker. No; not what you felt, but what you desired to get 
out of the scheme. 

Mr. Johnson, of Ohio. I submit, Mr. Chairman, that it is unfair to 
interrupt the gentleman when he is answering. 

Mr. Homer. The scheme simply embraces the perfection of the 
national banking system. 

Mr. Walker. The perfection of the national banking system with 
reference to the interest of the banks? 

Mr. Homer. The interest of the banks is the interest of the public. 

Mr. Walker. The interest of the public was secondary, but the 
interest of the banks, as they desired, was primary. 

Mr. Homer. That may be the feeling in some sections, but I do not 
think that it is so in ours. We are very closely allied in Baltimore; 
the banks and the depositors are stanch friends and allies. 

Mr. Walker. You have said that you did not grapple with any of 
the evils ol the present financial conditions. 

Mr. Homer. Yes. 



110 NATIONAL CURRENCY AND BANKING SYSTEM. 

• Mr. Walker. That you did not grapple or attempt to grapple with 
any of them except this one. 

Mr. Homer. We confined ourselves to the national banking act. 

Mr. Walker. Do you think the difficulties connected with the 
national-bank act as such were what caused or aggravated the panic 
of 1893? 

Mr. Homer. No, sir; but the national-banking act, as it now is, is so 
constructed that it was not able to grapple with the extraordinary 
demands that were hurled upon it by the events of 1893. 

Mr. Walker. What was the source of those demands? 

Mr. Homer. It was the panicky feeling of the country. 

Mr. Walker. What did that arise from? 

Mr. Homer. It arose largely from the fear, in my judgment, that the 
Government would not be able to maintain its gold redemption of all 
its obligations. 

Mr. Walker. Then it comes to this: That we cannot have a safe 
currency system, a safe monetary system, until there is a correction of 
this relation of the affairs of the Treasury to the finances and banking 
of the country. 

Mr. Homer. I think that is very necessary. 

Mr. Walker. Do you not think that the very primary thing that 
these bankers ought to grapple with in this case, they being trained 
men, should have been the whole question of the finances of the 
country ? 

Mr. Homer. We should have met with very little encouragement, 
perhaps, if we had attempted the solution of the entire question. 

Mr. Walker. Do you think there is any body of men in all the 
country better qualified to do so than they? 

Mr. Homer. I should not like to say that there is not. 

Mr. Walker. Is it presumable that there is a body of men better 
qualified? 

Mr. Homer. Hardly. 

Mr. Walker. It seems that your organization looked, first, to the 
requisite of a bank note that should be secure. 

Mr. Homer. Yes. 

Mr. Walker. Do you think that you have added to the security of the 
circulating bank notes of the country as to their ultimate redemption, 
by your system, over the present system of using United States bonds? 

Mr. Homer. No; but I think we have established a security just as 
good. 

Mr. Walker. But you have not improved it? 

Mr. Homer. No ; it can not be improved, unless you say there can 
be something better than our Government bonds. 

Mr. Walker. In the second place, have you made any progress 
toward making the currency of the country anymore uniform than the 
national-bank currency now is? 

Mr. Homer. No; we have not undertaken to do that. We have not 
attempted to disturb that factor of the existing law. 

Mr. Walker. Then you have made no progress at all in the scheme 
you propose? 

Mr. Homer. I do not think the existing uniformity of the bank-note 
currency can be improved upon. 

Mr. Walker. Then you have proposed a scheme which you want 
adopted that will not make a note any more secure, and will not make 
it any more uniform, have you? 

Mr. Homer. No; but we have done this: We have increased the 






NATIONAL CURRENCY AND BANKING SYSTEM. Ill 

functions, the ability to serve, the ability to help, through the national- 
bank system, by the substitution of the difference between the cost of 
the bond and the circulation that we have received. 

Mr. Walker. That would increase the profit of the bank on circu- 
lation. 

Mr. Homer. There has been very little in that respect, and an 
increase would not be harmful. 

Mr. Walker. I amnot talking about that. Would you increase itt 

Mr. Homer. Slightly. 

Mr. Walker. Do you think you could get money any more quickly 
than you could by depositing those bonds and taking out bills if they 
were already printed'? 

Mr. Homer. If I am obliged to deposit $114,000 and get only $90,000 
in return, 1 am worse off. 

Mr. Walker. That comes back to the interest of the bank instead 
of the interest of the public! 

Mr. Homer. Not entirely, sir. Suppose I have here a customer 
who desires to make a loan of $10,000, and that such a plan would 
enable me to lend that amount to him, whereas the other plan would 
only enable me to give him a part, the ability to lend is certainly in 
the interest of the public. 

Mr. Walker. Are you aware of any jealousy that exists between 
State and national banks to an extent that injures the financial inter- 
ests of the country? 

Mr. Homer. I am not; though I confess that there is a feelings 
between them. 

Mr. Walker. Do you think that feeling is injurious to the finances 
of the people? 

Mr. Homer. Its influence might go to this extent, that it might 
create a currency which, traveling with the national bank currency, 
would give us two classes of circulation medium. 

Mr. Walker. I am not talking about that at all. You are entirely 
off the subject. I ask you if you have any knowledge whether the 
bankers assembled at that convention considered that the finances of 
the country to-day were being injured by the jealousy that existed 
between the State banks and national banks'? 

Mr. Homer. No, sir. 

Mr. Walker. Then you went to work to devise a system that would 
remove that jealousy? 

Mr. Homer. There was a feeling, not on the part of the bankers, but 
so far as it came within my knowledge there has been a feeling in com- 
munities, in sections of the country, against the national banking 
system. 

Mr. Walker. That is another subject. What you testified to was 
that you thought that your scheme would remove the jealously between 
the State banks and the national banks. 

Mr. Homer. It is the general feeling that exists with reference to the 
national banks and their desirability. 

The Chairman pro tempore (Mr. Sperry). Mr. Hepburn is here, 
and can give us about an hour, but desires to take the 4 o'clock train 
away from the city. 

Mr. Walker. If this gentleman is willing to remain over after to-day 
I have no objection to his now leaving the stand to allow Mr. Hepburn 
to make his statement. But the committee have invited this gentle- 
man here to tell us what the bankers have done and what they have 
not done. 



112 NATIONAL CURRENCY AND BANKING SYSTEM. 

The Chairman pro tempore. The committee will perhaps put some 
limit, so that we can hear these different gentlemen. 

Mr. Walker. I do not propose to pursue these inquiries with any- 
body except this gentleman. But my point is this: Here is an organ- 
ization of the national bankers of this country that met in Baltimore 

Mr. Homer. It is not an organization of national bankers. There 
were State bankers as well as national. It is known as the American 
Bankers' Association. 

Mr. Walker. Both State and national? 

Mr. Homer. Yes. 

Mr. Walker. I supposed itw T as national. They met, after the great 
crisis of 1893, in the present condition of the finances of the country and 
the present condition of the Treasury, and have brought before this 
committee a scheme that would make confusion worse confounded and 
ask us to adopt that scheme, and I thought I would like to propound 
some questions that would develop the fact that they have paid no 
attention to the interests and wants of the country, or to relieving the 
Treasury, but w x ere simply looking out for their own interests in these 
times. It looked to me a good deal like fiddling while Borne burns. I 
will, however, withdraw any further questions if it is the desire of the 
other gentlemen of the committee. 

Mr. Warner. I should like to ask one question. 

The Chairman pro tempore. If the committee would like to hear 
Mr. Hepburn for three-quarters of an hour, they now have an opportu- 
nity, otherwise he can not be heard at present, for he has to leave the 
city. 

Mr. Walker. I am perfectly willing to give way. I believe other 
members of the committee would like to ask questions of this gentleman. 

Mr. Hepburn. I suggest that the committee proceed with the exami- 
nation of this gentleman, who is one of the most competent bankers of 
the country. 

The Chairman pro tempore. The Chair feels that he would like to 
take the sense of the committee on this question. There may be a 
majority of the committee who would rather hear Mr. Hepburn than to 
continue the hearing of this gentleman. 

Mr. Homer. I am sure they would. 

The Chairman pro tempore. Without any motion having been made, 
the Chair will take the sense of the committee on that point. 

Mr. Black. That is an unfortunate way to put it, it seems to me. 
We do not want to discriminate against this gentleman. 

Mr. Homer. Let me say that I wish the committee would excuse 
me. I have a sick cashier at home, and it was only with difficulty that 
I got away at all. 

Mr. Walker. I want to enter my most serious protest against being 
cut off. I have a few questions that are very vital as to the develop- 
ment of this Baltimore scheme, and this is the first witness we have 
had on this subject. I do not desire to interrogate Mr. Hepburn upon 
these same points at all. I think I shall avail myself of my right in 
the committee to ask some questions of this gentleman, for I have the 
floor. 

The Chairman pro tempore. Without limit? 

Mr. Walker. I think I will be reasonable in limit, but I should like 
to ask a few more questions. (To Mr. Homer:) If I understand you, 
the banks of Baltimore that availed themselves of the use of the certifi- 
cates of the Baltimore clearing house paid for the use of those certifi- 
cates 6 per cent? 



NATIONAL CURRENCY AND BANKING SYSTEM. 113 

Mr. Homer. Yes, sir. 

Mr. Walker. You say that your scheme would collect iu the Treas- 
ury a fund of $17,500,000? 

Mr. Homer. Yes; if all the national banks enter the scheme, and 
taking $700,000,000 as a round sum for national banking capital to-day. 

Mr. Walker. That the income upon that at 3 per cent would be 
$525,000 per year? 

Mr. Homer. Yes, sir. 

Mr. Walker. And that the losses, as shown by the history of banks 
of the last thirty years, would be only $30,000 per year? 

Mr. Homer. $053,000 for the thirty years would be a little over 
$30,000 per annum. 

Mr. Walker. Then .you would collect interest on this, but you say 
nothing about that being seventeen and one-half times as much as the 
statistics show would be necessary. 

Mr. Homer. Yes, sir. 

Mr. Walker. You have not any doubt but that any tax upon the 
banks is a tax upon the people of the country in the increased cost of 
the money to them and the increased cost of goods and everything else, 
have you ? 

Mr. Homer. We would be simply paying under this plan the same 
tax that we are paying- under existing law. 

Mr. Walker. I knew that from the law. I understood that myself ; 
but my point was, whether all these taxes do not ultimately come out 
of the people, and how you can justify yourself in imposing a tax of 
seventeen and one-half times as large as is necessary. 

Mr. Homer. The first motive or incentive for that was to furnish a 
fund absolutely secure, about which there could be no question. 

Mr. Walker. Is there any fire-insurance, life-insurance, or any 
other kind of company in the world that takes seventeen and one-half 
times as much taxation as is necessary to secure it? 

Mr. Homer. It is the provision in force under the Canadian system. 
It is based upon precedent. 

Mr. Walker. You said that in your direct examination. But my 
question is direct: How could you be justified in taking a tax seven- 
teen and one half times more than would be necessary iu order to make 
every bill issued by the banks absolutely secure ? 

Mr. Homer. Whether they would be justified in taking that? 

Mr. Walker. In taking that tax and taking it out of the people 
who use the money, and out of the banks from which they borrow the 
money. I am not putting it on the ground of taxing people for the 
support of the Government; that is another thing. 

Mr. Homer. It is an excessive fund ; we have too much security. 

Mr. Walker. That is all I want on that point. The issue of bank 
notes, under your system, is limited entirely by capital? 

Mr. Homer. Yes. 

Mr. Walker. Without any reference to the surplus that the bank 
may have? 

Mr. Homer. Y^es. 

Mr.W r ALKER. I should say not the surplus, but the reserve, without 
any reference to the reserve. 

Mr. Homer. There has never been any reserve for circulation. 

Mr. Walker. Here is a bank, we will say, that has $100,000 capital 
and $500,000 of deposits. That bank can issue $50,000 circulation, and 
there are hundreds of instances of that sort in the banking system. 
Here is another bank that has $100,000 capital that has only $50,000 ot 

NAT CUR 8 



114 NATIONAL CURRENCY AND BANKING SYSTEM. 

deposits, and that bank issues $50,000 of circulation on its assets. 
So it turns out that in the one case the one bank has $50,000 of cir- 
culation, or one-third of its assets, and in the other case it has only one- 
sixth, even it that. What is the point of making so unequal an arrange- 
ment as regards putting the circulation at so Iowa point with the 
assets of the bank, the surplus fund, the reserve fund, etc., when the 
bank might safely issue three or four times as much! 

Mr. Homer. By making it 50 per cent ? 

Mr. Walker. Why that % 

Mr. Homer. Baltimore conservatism dictated an absolutely safe plan 
for note issue. 

Mr. Walker. Do you not think it is just as safe to issue $100,000 
where you have six times that amount of assets, as to issue $50,000 
where you have three times that amount of assets'? 

Mr. Homer. Do you rely on the deposits as an absolute asset to meet 
the circulation of the bank? 

Mr. Walker. 1 should say that when the whole of the assets of the 
bank are liable for its bills, so far as the bills are concerned, they become 
assets because nothing can be paid out of those deposits until the bills 
are paid. 

Mr. Homer. Yes, that is very true: but is it not right to say that 
the best security for bank notes should be the bank's own money and 
not its depositors ! If I have $100,000 on deposit I am handling $50,000 
of my own money, and I do not feel that I have any absolute right to 
issue circulation as against deposit money intrusted to the bank by 
other people; I have only the right to hazzard the actual money of 
the bank represented by its capital. 

Mr. Walker. Then you make a distinction between capital and 
assets; but what the bank has with which to pay its circulating notes 
is its assets over its liabilities'? 

Mr. Homer. Yes, sir. 

Mr. W^alker. A bank to-day is holding one-sixth more than the 
reserve the law requires; the law would require a reserve, which is the 
bank's, without any reference to its capital of $125,000, and it can issue 
$100,000, while under the system you suggest the reserve held by the 
bank to pay its notes would be $12,500 for $50,000. That is all I have 
to say about it. 

Mr. Johnson, of Indiana. With reference to bank profits on circula- 
tion it is impossible to have a circulation without profit to the bank, 
is it not"? 

Mr. Homer. Well, the existing circulation is largely compulsory. I 
know of very few banks in. the country who have to-day the maximum 
amount of their circulation. 

Mr. Johnson, of Indiana. The trouble is that the profit is too small 1 ? 

Mr. Homer. The profit is too small. I think the Baltimore banks, 
with but few exceptions, have the minimum amount. 

Mr. Johnson, of Indiana. The profit of the banks on circulation does 
not necessarily amount to an oppression of the interests of the people! 

Mr. Homer. No. 

Mr. Johnson, of Indiana. The banks might make a profit and the 
people receive a benefit at the same time'? 

Mr. Homer. Yes. 

Mr. Walker. Your plan does not relieve the Treasury in any way, 
and is not intended for that purpose! 

Mr. Homer. No, sir. 

Mr. Walker. You still leave the Treasury as it is now, subject to the 



NATIONAL CURRENCY AND BANKING SYSTEM. 115 

constant watchfulness of the people here and abroad, with the proba- 
bilities that the bills will be put in for redemption and gold taken out? 

Mr. Homer. Certainly. 

Mr. Walker. And your plan is not intended to meet anything of 
that kind at all f 

Mr. Homer. No, sir; it is simply a perfection of the national banking 
iaw. 

Mr. Brosius. You have said that the experience in the past has estab- 
lished the fact that the best security a note circulation can have is the 
bills receivable of the banks in the aggregate? 

Mr. Homer. Yes. 

Mr. Brosius. I have no doubt of the truth of that; but in an indi- 
vidual instance may not a bank be so badly managed, may not such 
poor judgment be exercised in effecting its loans that those bills 
receivable might not be a security at all for its circulating notes? 

Mr. Homer. Undoubtedly. 

Mr. Brosius. If, in a given year, there should be a half dozen banks 
of the United States so conducted that their bills receivable would not 
turn out to be a security for their circulation, would not every holder 
of bank notes of those particular banks feel that the danger of loss 
from holding such notes might fall upon him unless there were some 
other security? 

Mr. Homer. Do I catch your question clearly — that the holder of a 
note of an insolvent bank might fear loss under this plan? 

Mr. Brosius. Yes ; that is, if the responsibility for the entire security 
is the bills receivable of that bank. 

Mr. Homer. Under the Baltimore plan? 

Mr. Brosius. My point is whether there should not be some other 
security for the circulation of every bank note than the assets of the 
bank itself. 

Mr. Homer. We have given you that, Mr. Brosius, in the guarantee 
fund. 

Mr. Brosius. I know you have, and you have given to us, in the 
ultimate responsibility, the guarantee of the United States Government. 

Mr. Homer. Yes. 

Mr. Brosius. And I quite- agree with you in that particular. But I 
wanted to direct your attention to what you said about the safety of 
the bills receivable of the banks as a security for their circulation. 
Suppose each bank stood upon its own bottom, and you can easily 
imagine a case where the bills receivable of a particular bank would 
not be any security at all. 

Mr. Homer. That is true. 

Mr. Brosius. Then in order to make the holder of a bank note 
entirely secure there must be some other security than that of the 
assets of the particular bank ? 

Mr. Homer. Yes. 

Mr. Brosius. You meet that contingency by your reserve fund? 

Mr. Homer. By our guarantee fund. 

Mr. Brosius. And you meet any residue of risk that may remain 
after the assets are exhausted, whether they are good or bad, and the 
5 per cent, by having the ultimate responsibility of the Government of 
the United States to give every man who holds a note satisfaction and 
peace of mind? 

Mr. Homer. That is correct, sir. 

Mr. Sperry. I should like to inquire whether you have made any 
calculation of the profit on circulation under ^the Baltimere plan or 
under the Carlisle plan? 



116 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Homer. No, sir; I have not. 

Mr. Sperry. You would not be able to say whether the profits are 
such under the Secretary's plan as to insure the banks making a profit? 

Mr. Homer. The profit would be somewhat larger under the Balti- 
more plan than under the Secretary's plan, because while the Secretary 
gives us 75 per cent of our circulation he exacts from us a deposit of 35, 
which would leave 40 per cent of circulation. The Baltimore plan gives 
50 per cent with a deposit of 5 per cent for the guarantee fund. The 
difference would be but slight, however. 

Mr. Sperry. Are there any features, aside from deposits of 30 per 
cent under the Secretary's plan, which under your plan would be so 
objectionable to the banks as to prevent them from adopting it? 

Mr. Homer. Outside of that general guarantee? 

Mr. Sperry. Outside of the $30 legal-tender deposit on the $100. 

Mr. Homer. I am hardly prepared to answer that question, Mr. 
Sperry. The deposit of money for the circulating notes is more advan- 
tageous to the banks than a deposit of Government bonds, because the 
amount of currency issued against the same amount in dollars invested 
is larger. 

Mr. Cobb, of Alabama. Is it the premium on United States bonds 
which alone gives the profit in circulation ? 

Mr. Homer. No, sir; but that is one of the features. 

Mr. Cobb, of Alabama. Is it the main feature? 

Mr. Homer. If the premium is larger than the difference between the 
par and the amount allowed, the premium would be the main element ; 
but the feature is this: That on an investment of $114,000 we receive 
circulation to the extent of $90,000. 

Mr. Cobb, of Alabama. But you get interest on the $100,000? 

Mr. Homer. That is true; but we have staring us in the face a pre- 
mium account subject to fluctuations, which in a year like 1893, with 
much depreciation in the market value even of our Government bonds, 
would very materially impair the profits of the bank. 

Mr. Cobb, of Alabama. That is the reason I asked the question. I 
simply wanted to know whether that premium was the real and sole cause 
or the prime cause. 

Mr. Homer. No, sir; it is not; it is the fluctuations in premiums to 
some extent. 

Mr. Cobb, of Alabama. When not above par the profit of the banks 
would be greater? 

Mr. Homer. It would be greater; it would require the investment of 
less capital. 

Mr. Cobb, of Alabama. Then you would not have cause to complain 
of this want of profit, except for such loss of profit as comes from ordi- 
nary causes? 

Mr. Homer. There has been no complaint as to the profit under the 
Baltimore plan, and was none in the deliberations of the American 
Bankers' Convention. Our aim was to establish an elastic currency, 
and we kept in view the idea of creating elasticity and avoiding the 
other feature, which ties up more money than you receive, and which 
prevents elasticity in bank circulation. 

Mr. Cobb, of Alabama. You regard elasticity as a necessary element 
of profit? 

Mr. Homer. Not only as a necessary element of profit, but as a nec- 
essary requirement of the conditions of trade. 

Mr. Warner. Is it true that the less a currency system is obstructed 
the lower will be the interest? 



NATIONAL CURRENCY AND BANKING SYSTEM. 117 

Mr. Homer. Yes, sir. 

Mr. Warner. And when obstructed, to that precise extent you sim- 
ply pass on that charge, or the burden of that obstruction, to those to 
whom you lend money? 

Mr. Homer. Yes; that would naturally be the case. 

Mr. Warner. And the less obstruction to you in getting currency 
the lower will be the interest? 

Mr. Homer. To a certain extent that is true, and it would perhaps 
be a general rule. 

Mr. Warner. And that is a corresponding benefit to the country, 
which accompanies the benefit to the banks in being able to get out 
currency easily? 

Mr. Homer. Yes. 

Mr. Walker. That applies just as well to excessive taxation. 

Mr. Homer. Upon the emergency 

Mr. Walker. I do not mean that; I mean upon the $17,000,000; if 
the taxation is excessive, that is a tax on the system. 

Mr. Homer. I have explained here that the purpose of this plan 
was to create an absolutely safe currency without a bond deposit. Now, 
if this committee or this Congress should feel that the banks have been 
too liberal in the creation of a guarantee fund, I am sure there will be 
no argument advanced against a reduction of that amount. 

Mr. Walker. But you present this to us as the ultimate result of a 
careful 

Mr. Homer. Of a conservative action. 

Mr. Walker. Of a careful and conservative action by a bankers' 
convention, the members of which know more about finances than all 
of us know, and, as one of your men said, more than we do, for he 
said that we were entirely incompetent to deal with the question, or, in 
fact, to deal with much of anything else. So long as you take that 
position I do not know that I care to interrogate you further about it. 

Mr. Cobb, of Alabama. Do you think your p] an gives us the cheapest 
currency consistent with safety? 

Mr. Homer. I think it does. 

Mr. Sperry^. I have heard some criticism of the Baltimore plan by 
reason of the fact that the Government is made ultimately liable for 
the redemption of the bills. Would it be possible to modify the Balti- 
more plan and leave that responsibility of the Government out of the 
question, and administer it through the safety fund only? 

Mr. Homer. I believe, as 1 stated, Mr. Sperry, that it would be abso- 
lutely safe under the rigid supervision of the Comptroller. I feel that 
the responsibility in this matter is small and technical only, and that, 
while it is technical, it is of sufficient force to assure the careful super- 
vision and control of the banks issuing currency. 

Mr. Sperry\ Then your judgment is, to put the question another 
way, that under the supervision of Federal control and the safety fund 
you would regard the currency as being safe ? 

Mr. Homer. I believe it would be a safe currency. 

Mr. Sperry. Would it be as satisfactoiy to the people, in your judg- 
ment ? 

Mr. Homer. I think not. 

Mr. Sperry. Do you mean it would be so unsatisfactory that the bill 
would not pass readily ? 

Mr. Homer. Xo, sir; I would not hazard that, because it would be 
a good and safe note, in my judgment. 

Mr. Sperry A note that all the banks would accept? 



118 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Homer. Yes, sir. 

Mr. Sperry. Tlien the people would accept it ? 

Mr. Homer. There would be uo question at all about it, but I feel 
that a country as enlightened and as commercially active as our own 
ought to have the best circulation which can be created. 

Mr. Brosius. Do you think it is right for the government of any 
country to authorize the issue of any bank note for general circulation 
without guaranteeing tlie redemption of it? 

Mr. Homer. I am not an advocate of State- bank circulation. 

Mr. Brosius. Neither am I. 

Mr. Homer. I believe in having a good note; a note that will pass 
from hand to hand without the least question or doubt as to its bringing 
the amount for which it was issued. 

Mr. Sperry. A note under the Canadian system does not carry any 
Government warrant? 

Mr. Homer. No, sir. 

Mr. Sperry. A note issued under this system would be just as good 
as a Canadian note, would it not? 

Mr. Homer. I think so. 

The Chairman. Mr. Hepburn, who was to address the committee at 
this time, has informed the Chair that, owing to a previous engagement, 
he has been obliged to go to New York on the 4 o'clock train, and that 
he can not appear again before Thursday of this week. For that rea- 
son, and there being no other gentleman to appear before the committee 
at this time, if there be no objection, the committee will stand 
adjourned until 10 o'clock to-morrow morning. 

The committee adjourned at 3.22 o'clock p. m. 



Washington, D. C, Wednesday, December 12, 189-1. 

The committee met at 10 a. in. 

Present: the chairman (Mr. Springer) and Messrs. Sperry, Cox, Cobb 
of Missouri, Ellis, Cobb of Alabama, Warner, Johnson of Ohio, Black, 
Hall, Walker, Brosius, Henderson, Russell, Haugen, and Johnson of 
Indiana. 

On motion of Mr. Warner it was ordered that 250 preliminary copies 
of the report of the proceedings of the committee be furnished daily 
for the use of. members of the committee. 

Mr. Johnson, of Indiana, and Mr. Cox pointed out certain inaccura- 
cies in the report, and were informed by the chairman that the matter 
was open for revision and correction, and that the corrected report 
only would pass into a permanent form and be presented to the House ; 
and the chairman invited members of the committee to make all neces- 
sary corrections and hand them to the clerk. 

LETTER OF MR. LYMAN J. GAOE. 

The chairman stated that he had addressed a letter to Mr. Lyman J. 
Gage, president of the First National Bank of Chicago, requesting 
him to appear before the committee, and had received a telegram in 
reply stating that it was impossible for Mr. Gage to appear before the 
committee, but that he would communicate his views in writing. The 
chairman had received a letter from Mr. Cage this morning; and, as 
that gentleman was a very eminent authority on the subject of banking 
and currency, his letter would be printed in the report of the pro- 
ceedings. 



NATIONAL CURRENCY AND BANKING SYSTEM. 119 

Mr. Gage's letter was thereupon read by the chairman, and is as 
follows : 

First National Bank of Chicago, 

Chicago, December 10, 1894. 

Dear Sir: I am honored by receipt of your request to appear before 
your committee on Saturday next, or on some day prior thereto, in re 
the recommendations of the President and the Secretary of the Treas- 
ury concerning the currency. 

The notice is so short that I can not arrange to be present in person, 
but beg very briefly to state here the conclusions at which I have 
arrived. 

Agreeing with the criticisms made by these officers of the Govern- 
ment as to the present weakness of our situation, and the great desira- 
bility of separating the Government from the direct responsibility of 
currency issues, I am persuaded that the country is not ready to accept 
their recommendations as to the methods proposed. In making any 
change the method should be so simple that all can comprehend it, and 
it should be seen that the incidental effects would not be in any direc- 
tion disturbing to trade, commerce, or industry. I believe that the 
" Baltimore 'plan " carries the true principles of a credit currency, but 
we cannot reach it by any one step, and years may intervene before it 
could be realized. In the meantime, the way for the Government to 
step out of the currency business and place the burden of redemption 
upon the banks is plain. 

Authorize the issue of $250,000,000 of 2J per cent bonds, payable at 
such time as Congress may elect (twenty-five years desirable), to be 
offered to subscribers at par. Accept in payment United States legal- 
tender notes or Treasury notes, the same to be canceled. 

Amend the national-bank act so that banks can obtain note issue to 
the face value of bonds deposited as security for circulation. B educe 
the tax on circulating notes to one-half of 1 per cent. 

This done, national-bank notes would make good the vacuum caused 
by the retirement of Government notes; in fact, there would be some 
expansion under it, to be followed later by some contraction through 
forced redemption of bank issues, if it be true, as some claim, that the 
volume of circulating media in the United States is larger than can be 
maintained, and that the outflow of gold is nature's method of equaliz- 
ing things. If this be so, if contraction through the exportation of 
gold, or by the retirement of a portion of the paper money, be a logical 
sequence of our situation, then, in that case, the Government being 
safe from demands, the banks with circulation outstanding would be 
obliged to bring their issues within narrower limits; but all this would 
work itself out, and need not be dwelt upon at length now. 

The problem is this: To take the Government out of the note-issuing 
business — 

(1) Without contracting the currency in the process. 

(2) Without inviting to expansion. 

Secretary Carlisle's plan is subject to the danger involved under the 
last suggestion. 

Yours, very truly, Lyman J. Gage. 

Hon. W. M. Sprjngee, 

Chairman Banking and Currency Committee, 

Washington, J). C. 

P. S. — Were the above suggestions to receive serious consideration, 



120 NATIONAL CURRENCY AND BANKING SYSTEM. 

there are some features of the national-bank act that would require 
amendment in order to give note holders easier and cheaper access to 
the point of redemption than now exists. Redemption agents in cities 
should be restores, but these are details which I will pass by. 

LETTER OF MR. EDWARD N. OIBBS. 

The chairman stated that he had also addressed a letter to Mr. 
Edward 1ST. Gibbs, treasurer of the New York Life Insurance Company, 
requesting him to appear before the committee. Mr. Gibbs had sent 
his regrets that he could not come, but had forwarded a brief state- 
ment of his views. This letter was likewise read by the chairman, and 
is as follows: 

New York Life Insurance Company, 

New York, December 11, 1894. 

My Dear Sir : Jn view of your courteous invitation, and my inability 
to appear before your committee, I venture to express, in much fewer 
words than I should be able to do if present, views I entertain respect- 
ing the banking and currency question as it exists to day. I should 
like to say — 

First. That, in my judgment, the legal-tender notes are the greatest 
danger our existing financial System has to contend with. 

Second. With some slight modifications, born of experience, our 
national banking system is, or can be made, the best in the world. 

Third. If the Government would retire from the banking business; 
that is to say, that portion thereof forced upon it by the exigencies of 
the last war, refunding — with such deliberation as would prevent unnat- 
ural contraction of the currency — the outstanding legal-tender notes 
into a long time low r rate of interest bond, available for banking pur- 
poses, the result upon the business of the country could be only helpful. 

Fourth. In this connection, such restrictions as experience has dem- 
onstrated as unnecessary, might wisely be removed from the national 
banking act, so that, based upon the new bonds, there should be suffi- 
cient profit to the national banks, South, West, North, and East, to pro- 
vide, as is their legitimate function, the paper money of the country. 
This would imply removal of existing tax on circulation and proper 
requirements for prompt redemption of circulation. 
Yours, truly, 

Edward N. Gibbs, Treasurer. 

Hon. Wm. M. Springer, 

Chairman Committee of Banking and Currency, 

Washington, I). C. 

The chairman also stated that he had sent an invitation to Mr. 
Enoch Pratt, of Baltimore, president of the board of trade of that city, 
and who was one of the gentlemen present at the convention of the 
American Bankers' Association at Baltimore. Mr. Pratt regretted his 
inability to attend, but had sent no statement of his views. Mr. George 
A. Butler, president of the National Tradesmen's Bank, of New Haven, 
Conn., the author of a pamphlet on the subject, copies of which were 
on the table, was present, and would address the committee. 

REPORT OF THE COMPTROLLER OF THE CURRENCY. 

Mr. Johnson, of Indiana, moved to have incorporated in the pro- 
ceedings that portion of the report of the Comptroller of the Currency 
which relates to amendments to banking laws, and it was so ordered. 



NATIONAL CURRENCY AND BANKING SYSTEM. 121 

The portion referred to is as folio ws: 



AMENDMENTS RECOMMENDED. 



"The act enumerating the duties of the Comptroller of the Currency 
specifically requires that in his annual report to Congress at the com- 
mencement of its sessions he shall suggest "any amendment to the 
laws relative to banking by which the system may be improved and the 
security of the holders of its notes and other creditors may be 
increased.'* 

"In compliance with the foregoing there were submitted at the last 
session of Congress certain recommendations looking to the amendment 
of existing laws. As yet the suggestions then made remain unacted 
upon, and therefore they are resubmitted. It is unnecessary to here 
set them forth in detail or again give the reasons then assigned in sup- 
port of them. In a general way it may, however, be stated they cover 
the following points: 

"That associations, if the present law is not changed as to a bond 
deposit, be authorized to issue circulating notes equal to the par value of 
the bonds deposited; that the semiannual duty on circulation be so 
reduced as to equal one-fourth of 1 per cent per annum; that the Comp- 
troller, with the approval of the Secretary of the Treasury, be em- 
powered to remove officers and directors of national banks for violations 
of law; that loans of any bank to its executive officers or employees be 
restricted; that the assistant cashier under certain conditions be au- 
thorized to sign circulating notes; that some class of public officers be 
empowered to administer the general oaths required by the national- 
bank act; that bank examiners be required to take an oath of office; 
that the Comptroller be empowered to fix their compensation, and that 
provision be made for supervising examiners. 

" It is believed the taking of proper legislative action upon these pro- 
posed amendments would be for the betterment of the system and pro- 
motive of the public good. 

"The amendments thus suggested, however, affectin the largest degree 
only the administrative features of the present national-bank act, and 
are of less relative importance than the remedying of any detects 
which may exist in the note-issuing power vested by it in the banks. 
No section of the law should be disturbed which can not be materially 
improved upon and no amendment engrafted unless such amendment 
will work out better results than flow from the existing order of things. 

"The present law, it must be conceded, has been successful in every 
material feature, excepting in the matter of bank-note issue, and here 
the failure has been but a partial one. The notes issued by the banks 
under governmental supervision have been uniform in appearance and 
under any and all circumstances of the full face value which they pur- 
port to carry. They have possessed the first requisite of a good bank- 
note issue — immediate convertibility in coin upon presentation. 

" It is probable that there could be no better plan for simply insuring 
the note holder against loss than the present requirement of a deposit 
of bonds to secure a bank's circulation, but it is equally certain, how- 
ever, that a method could be devised not less safe in. this respect and in 
addition thereto possessing that which is as essential and is now wholly 
wanting — elasticity of issue. The complaint therefore made against the 
present system is that, lacking in elasticity of issue, it fails to meet as 
fully as it ought the varying wants of the country's trade and com- 
merce. This defect must attach to every scheme for currency issued by 



122 NATIONAL CURRENCY AND BANKING SYSTEM. 

the banks against a deposit of bonds, the market value of which fluc- 
tuates while the percentage of issue, less than the value of the bonds 
gran ted the banks, remains unchanged. It must also be wanting in such 
a method because of the delay, in the face of a pressing need, occasioned 
by a tight money market or other reason, in securing and depositing the 
bonds required and taking out the circulation thereon. 

" But serious as is this fault, and retardful as it is to the business 
interests of the country, any attempt to remedy it which should lose 
sight of or in anywise make less certain the present unquestioned 
credit and convertibility of the bank issues of the country could not 
be justified. It is a duty of Governments to see that the currency 
which circulates among the people ought always to be of the very 
highest character, and the soundness of which should never be a sub- 
ject of inquiry. For thirty years the American j)eople have had such 
a bank currency, and having seen the value of it, both here and 
abroad, they will not be content to have any innovation made unless 
such new departure insures not only equal but better results. 

" It is respectfully suggested that not only as good but better results 
would be obtained if the present banking act were amended by repeal- 
ing the provision thereof requiring each, bank as a prerequisite to 
entering the system and issuing bank-note currency, to deposit Gov- 
ernment bonds. 

"In lieu of such provision should be substituted one permitting the 
banks to issue circulating notes against their assets to an amount 
equal to at least 50 per cent of their paid-up unimpaired capital. In 
order to guarantee the note holder against loss on account of the issue 
of any insolvent bank, a safety fund should be provided by graduated 
taxation upon the outstanding circulation of the banks until the same 
should equal not less than 5 per cent of the total of such outstanding 
circulation, such fund to be held by the Government as an agent only 
and for the purpose of immediately redeeming the notes of such insol- 
vent bank. It should be as speedily as possible replenished by a first 
and a paramount lien out of the assets of the bank and the share- 
holders' double liability. The redemption of such notes should be 
immediate upon presentation. Whatever other changes, if any, it 
would be necessary to make in the present system relative to current 
redemption of bank notes, and the Government's position relative to 
the same and kindred matters, it is unnecessary to here set forth. If 
the recommendation here made, together with that which will follow, 
should receive consideration at the hands of Congress, a bill drawn 
after careful study and investigation of the whole subject would neces- 
sarily embody all the details incident to a change from a bond to a 
safety fund security as a basis for bank circulation. 

"Before presenting what seems to the Comptroller to be as important 
a phase of the question under discussion, and one which, if properly 
worked out, would be of great benefit to the General Government, it is 
pertinent to state that the change in the form of security for bank-note 
issues proposed was sanctioned not only by the American Bankers' 
Association, which recently met in Baltimore, but is indorsed by many 
of the leading financiers and students of political economy in this and 
other countries. It is embodied in the Canadian bank system, and in 
part, at least, in the Scotch, English, and German systems. It is safe to 
say that a note-issuing bank's best assets are its good business notes 
falling due and paid each day, and that the loss attendant upon notes 
issued and circulated against such assets under systems permitting it 
has been comparatively nothing. Only by issuing against them instead 



NATIONAL CURRENCY AND BANKING SYSTEM. 123 

of against a bond security can any degree of elasticity in the note-issuing 
function be attained. It certainly can not be reached in the present 
hard and fast line fixed by existing law. 

"As an aid in arriving at the proper per cent of taxation necessary to 
raise a fund sufficient to redeem the notes of failed banks and the expense 
incident to the conduct of the office of the Comptroller of the Currency 
the following, taken from official records, is submitted: 

Average annual circulation of national banks, 1864 to 1894 $282, 801, 252 

Outstanding circulation of failed banks 17, 819, 541 

Cost to General Government on account of national banks, as shown by 

the books of the Comptroller's Office 7, 610, 169 

Additional estimated cost 7, 732, 914 

15, 343, 083 

Tax of one-fourth of 1 per cent for thirty-one years 21, 917, 073 

Tax of one- fifth of 1 per cent for thirty-one years 17, 533, 674 

u It will thus be seen that a tax on national banking circulation of 
one- fifth of 1 per cent would have repaid the cost of the national banks 
to the General Government, and also that a tax of one-fourth of 1 per 
cent would have redeemed the notes of all failed national banks; in 
fact, a tax of two-fifths of 1 per cent would have been ample to meet 
both the cost of that system and the redemption of the notes of failed 
national banks. Under the existing laws, the Government standing 
responsible for the redemption of the circulation of failed national 
banks, up to January 1 last, had there been no bond deposit whatever, 
the loss to it would have been but $1,139,253, and of this amount 
$958,247 represents the loss by banks whose trusts are still open and 
will pay further dividends, thus reducing the amount last named. 

"In considering the question of the benefits to the public of a bond 
deposit on the part of the banks it is well to remember that the com- 
paratively few failures on the part of national banks have not been 
because of any security given by them for their circulation, but because 
of prudent and honest 'management on the part of those in charge 
of them, and the careful supervision and examination of them by the 
officers of the Government. Under the same character of management 
and the same superintendency and watchfulness on the part of the 
Government, failures would not be more numerous under a change in 
the respect named, and therefore the deductions made from the facts 
ol the past are a safe basis for calculations as to the future. 

"The changes thus outlined will, upon investigation, it is believed, 
prove to be safe in affording complete security to the note holder and 
give to the business interests of the country a note issue responsive to 
their needs. Within the measure of percentage of issue against assets 
granted the banks will be such range as will enable them to keep out 
sufficient currency to meet the ordinary demands of business and to 
speedily take nut whatever extra amount is necessary to meet extraor- 
dinary occasions. It will not permit of an overissue if the notes 
issued under such system are convertible in coin on demand and the 
proper and speedy redemption of them is afforded. The business world 
will use just such amount of them as is necessary to carry on trade, and 
the remaining ones, it being unprofitable to have them in circulation, 
.will at once return for redemption. 

"The profit upon the issue of circulation to the banks by such change 
would be so augmented that it is giving to them a franchise for which 
it is suggested they should be called upon to make proper return to the 



124 NATIONAL CURRENCY AND BANKING SYSTEM. 

General Government. This return should not, however, he of such a 
character as to defeat the ends sought in the privilege given. 

"For a long time the chief source of embarrassment to the General 
Government and the cause of so great uncertainty in the business condi- 
tions of the country is the continual danger threatened by the use made 
of the currency issues of the Government, and the inability, when the 
revenues of the Government are inadequate, to maintain, except through 
bond issues, such a reserve of gold coin as is required by law. The 
current redemption of the legal-tender issues and the Treasury issues 
under the Sherman Act of 1890, and the reissuing instead of cancella- 
tion of the same, must always create distrust of the Government's 
credit abroad and at home, so long as the laws now upon the statute 
book remain unchanged. 

" The General Gevernment ought to be wholly free from direct issuing 
and redeeming of notes to pass as money among the people. No 
country yet has ever successfully engaged in so doing, and the experi- 
ence of the Government of the United States has proven no exception 
to the rule. The general cost and loss entailed upon the Government, 
the repeated periods of uncertainty as to its credit, and the stability 
of our monetary system have been so great as to make the legal ten- 
der and Treasury issues of 1890 one of the extraordinary burdens 
placed upon the people. The relief given in increasing the volume of 
the circulating medium has been as nothing compared with the expense 
incident to maintaining the reserve in gold at all hazards necessary 
to keep intact the Government's credit and provide for their current 
redemption. 

"These issues ought to be redeemed and canceled, and the Govern- 
ment thus enabled to retire from the banking business — a business for 
which it is so poorly adapted and equipped. The intention of those 
who first authorized the legal-tender issues was that it should so do at 
the earliest practicable moment, and the discussion then carried on in 
Congress is replete with such protestations. The first Congressional 
enactment signed by President Grant after his inauguration as Chief 
Executive was one reasserting the determination of the Government to 
preserve unquestioned the public faith, and the closing clause of it 
was " And the United States also solemnly pledges its faith to make 
provision at the earliest practicable period for the redemption of the 
United States notes in coin." 

"In the light of the present condition of the Government's finances, 
that which ought to have been done when there was a surplus in the 
Treasury can not now be undertaken, and the same conditions must con- 
tinue to weaken the country's credit and plague the lines of business 
unless a means is devised for removing these issues from the channel 
of current redemption until such time as the Government finds itself 
in such a position to do that which at first was the intent of all — grad- 
ually redeem and cancel them. 

"If the franchise is granted the banks of issuing circulating notes 
against their assets instead of against a bond security, it is suggested 
that the banks in return should recompense £he Government by reliev- 
ing the Treasury Department of the current redemption in coin of the 
present Treasury issues. The ultimate redemption, of course, must 
fall upon the Government, but the embarrassment does not arise from 
their ultimate redemption but from their current. 

" It is therefore suggested that if Congress shall repeal the provisions 
of the present act requiring the national banks to make a deposit of 
Government bonds in order to secure circulating notes, and substitute 



NATIONAL CURRENCY AND BANKING SYSTEM. 125 

therefor a provision giving them instead the right to issue the same 
against their assets, it incorporates therein and as a part thereof that 
as a prerequisite to so doing the banks be compelled to deposit with the 
Treasurer of the United States legal-tender issues, or issues under the 
Sherman act of 1890, equal in amount to the difference between the per- 
centage of their capital stock of issues granted against their assets and 
the total of such capital stock. The deposit thus made ought to remain 
with the Treasurer until the bank ceased either through voluntary or 
involuntary liquidation to do business, and in either case the Govern 
ment ought to then redeem and cancel such Treasury issues deposited. 
It is only by such permanent deposit during the life of the bank that 
the issues named can be removed from current presentation for redemp- 
tion. 

"As against this deposit of legal tenders and Sherman notes so made- 
there should be issued to the banks dollar for dollar of national bank 
notes, either of the same or different design, as might be deemed best, 
that thus fixed the volume of the currency, as it is now contributed to 
by the issues of the Government, would not be contracted so long at 
least as the banks making such deposits are in existeuce. The per- 
centage of the bank notes issued against this deposit should be free 
from any taxtion imposed upon circulation, and ought to be such per- 
centage as is deemed equitable, to be used as a part of the banks' legal 
reserve held against deposits. 

" The law should make it incumbent upon the banks to deposit with 
the Treasury for the current redemption of such notes gold coin to an 
amount necessary to make sure the current redemption of them. The 
Government should not undertake or in anywise become responsible 
for the current redemption of these notes. Its responsibility should 
end with its redemption of the notes deposited to secure such circula- 
tion when the bank ceased to exist. At present a current redemption 
fund of 5 per cent of the outstanding circulation is found sufficient, and 
it is probable that in the future no greater amount would be required. 

"As already suggested, it is not deemed necessary to here enter into 
a discussion of details. The principle, if correct, can be incorporated 
into a law framed in finch a manner as to meet any objections, be 
just and equitable to all concerned, and while placing upon the banks 
a daily burden now borne by the Government, give them just compensa- 
tion in making circulation a source of legitimate and fair profit instead of 
loss. The elasticity of issue in national-bank circulation will be found 
in the percentage of issue against assets, subject to the necessary rate 
of taxation and secured by an adequate safety fund to guarantee the 
note holder against loss on account of the notes of insolvent banks and in 
a current redemption fund maintained for daily redemption. The Govern- 
ment will be aided, the bank given in exchange a dollar for every dollar 
deposited, and thus relieved of the loss incident to depositing an amount 
of its capital stock in excess of the return in notes granted it. No vio- 
lent contraction of the currency would follow such a course, but when- 
ever contraction would occur it would be not less gradual than would 
at other times the expansion incident thereto. 

" It is respectfully suggested that as a necessary element to the secur- 
ing of proper elasticity of issue in our bank-note currency, section 9 of 
the act of July 12, 1882, regulating the retirement and issuing of cir- 
culation to banks within a rixed period of time, should be repealed, and 
also that such amendment should be made to the law as will necessitate 
the banks keeping in the office of the Comptroller of the Currency a 
sufficient amount of blank notes as will enable them to secure circula- 



126 NATIONAL CURRENCY AND BANKING SYSTEM. 

tion at once, instead of after a period of delay, frequently of sufficient 
duration as to make the issue unavailable to relieve the pressure exist- 
ing at the time of ordering the same. 

u It has been suggested from many eminent financial sources that the 
whole question of a banking and currency system ought to be referred 
by Congress to a commission, created by the proper act, appointed by 
the President, and clothed with proper authority. A commission, non- 
partisan in its character, composed of men of eminent abilities, could 
unquestionably devise a currency system sound in every part and one 
which would commend itself to every interest of the country. It could 
largely take the question out of politics and have it considered simply 
in its business aspects and upon merit alone; but if the present Con- 
gress is to enact a law upon the subject the appointment of a commis- 
sion could avail nothing. If, however, nothing more definite can be 
accomplished, the question of the creation of such commission ought 
to be considered and acted upon." 

STATEMENT OF MR. GEORGE A. BUTLER. 

Mr. George A. Butler, president of the National Tradesmen's Bank, 
of New Haven, Conn., addressed the committee. He said: 

Mr. Chairman and gentlemen of the committee: I shall labor under 
some embarrassment, from the fact that I am not accustomed to this 
kind of business. My habits of mind are those of the library rather 
than of the committee rcom or platform. I have been ill, and left a sick 
room to come to Washington, and I have not come prepared to make a 
set speech of any kind, and I take it for granted that none of you would 
care to listen to an academic essay on the history and principles of 
money. I take for granted that you prefer to take up the existing 
condition of things, and if I think that there are any evils underlying 
them to be eradicated, to point them out; and if I have any ideas that 
remedies can be applied to them, to express such ideas. I assume that 
it is rather on that line that you would prefer me to speak. 

It is very difficult for me to know just what to say and just where to 
leave off. I will be brief. I hastily threw together yesterday after- 
noon, in a very rough form, a few thoughts to outline the situation, 
which seem to me necessary in discussing any plan of currency. The 
first thought which comes to my mind is this : That if the condition of 
the country to-day is not perilous it certainly is very serious, and to 
my mind it is one which naturally and deservedly causes a great deal 
of anxiety. 

I verily believe that the one great cause of the retardation of busi- 
ness improvement in the country to-day is the uneasiness which people 
throughout the country feel in relation to our national finances. We 
have a great many different kinds of money, and none of them com- 
plies with any strict economical principle of currency. There is not a 
single one of them (except gold) that is not in direct violation in some 
respect of well-known and well-accepted fundamental principles of 
currency. 

The situation today is very peculiar. There seem to be a redun- 
dancy of the currency, and then, again, there seems to be a scarcity of 
the currency. That situation is a peculiar one in any country, and, I 
think, a dangerous one. Now, what evidence have we of any redundancy 
in the currency? The one test which all nations at all times apply to 
currency matters is the movement of specie. If my memory does not 
play me false (for I brought no memorandum with me, and have to rely 



NATIONAL CURRENCY AND BANKING SYSTEM. 127 

on my memory for everything), within the past four years the net export 
of gold, together with the gold used in the arts and business, have been 
just about twice the amount of the production of our mines. Now, that 
may take place from two causes — from a redundant currency and from 
profound distrust abroad, which leads foreign nations to send home our 
securities, which they held in large amounts. 

If the outflow of gold, which has been going on so heavily for the 
past four years, is the result of a redundant currency, it will not cease 
until it has eliminated the surplus currency from our circulation; and 
in that process it will be the best part of our circulation which leaves 
us. If the outflow of gold is one wholty or in part the result of fear 
abroad and of the sending home of our securities, the outflow will soon 
cease if it be dependent on that cause alone. But, while it is merely 
a matter of opinion, Mr. Chairman and gentlemen, I do not think it can 
be demonstrated. But as a somewhat careful student and watcher of 
current events, I will venture the opinion that a large part of the gold 
has gone abroad as a result of economical causes flowing out of a 
redundant currency. Bedundancy, of course, always operates to create 
a higher range of prices in the country until it increases imports and 
checks exports, and until gold goes out of the country. You are all 
familiar with the operation of this rule. Now, I have no doubt that 
there is a certain element of redundancy, which of itself, perhaps, is of 
no great importance except from a point of economy, which is growing 
out of the fact that none of our currency conforms to the movements of 
commerce and trade (not even our national-bank notes). 

There is not even a method of redemption, worthy of the name, by 
which activity can be given to the circulation. The redemption bureau 
is located in this city, removed from and out of the lines of travel of 
the great commercial and financial cities, making the redemption of the 
notes cumbersome and expensive to the banks. So far as I know of 
the custom of the banks in this matter, they only return to Washing- 
ton the soiled and badly mutilated notes. All the other notes they 
send to their correspondents in New York. With a central redemption 
(I mean a bureau of redemption in the financial center of the country, 
and with branches in the other semi-financial centers) the system might 
be made effective in the highest degree. Under the Suffolk bank sys- 
tem that redundancy and that sluggishness in the movement of cur- 
rency was never known, because all the other banks rushed their notes 
to the Suffolk bank, and the Suffolk bank sent them home twice a week. 
I think myself that there is a limit of redundancy. We have first the 
legal-tender notes and silver and silver certificates, which are limited 
strictly to a fixed amount. There is no system or way by which there 
can be any contraction or lessening of these amounts. The small amount 
of national-bank notes in circulation is too small in proportion to the 
whole of our circulation to have any effect on it in this respect, even 
although redemption were more effective than it is. By removing the 
bureau of redemption from Washington to New York, the redemption 
of notes would be so much more frequent and effective that it w r ould 
give more activity and flexibility, or elasticity, to the currency than 
the present method of redemption. 

I need not tell you, gentlemen, that there are times in the year when 
the country needs a very much larger amount of circulation than it 
needs at other times. I hardly need to say that there is no possible 
way of getting another system of currency in this country to-day. The 
fatal defect of our Government currency lies in the fact that it has no 
connection whatever with the commerce, the industry, or the trade of the 



128 NATIONAL CURRENCY AND BANKING SYSTEM. 

country, it can be put in circulation only in one way. It can be with- 
drawn from circulation only in one way. The Government can put it 
in circulation only in paying its debts. The Government can withdraw 
it from circulation only by raising it from dues. But there is no con- 
traction following out of that. There is no flexibility following out of 
thnt, because it is simply a transaction between one or a dozen individ- 
uals and the Government. 

Again, the Government has no legal means of maintaining any reserve 
against the notes that it may have in circulation. It has no assets. 
We have heard a great deal about faith, but faith does not butter bread 
nor parsnips. Neither does it redeem nor give flexibility or virtue to 
any currency. Confidence, of course, is necessary in all business. But, 
as I say, the Government has no legal way of maintaining any reserve 
which it must have now or must have in the future. I see no legal way 
now, because, while it is legal for the Government to sell bonds to make 
up its deficit, it is illegal for the Government, under the present cir- 
cumstances, to sell bonds to make good the reserve. At the same time 
that course is unnecessary, unscientific, and extremely expensive. I 
do not see why the selling of bonds might not be continued indefi- 
nitely. It seems very much like pouring water into a sieve and catch- 
ing it in another sieve. One million of legal- tender notes deliberately 
worked could take one hundred millions of gold out of the Treasury of 
the United States in any one year. Ten millions of legal-tender notes, 
worked to the full capacity that they might be worked, could withdraw 
a thousand millions of gold from the Treasury. 

I will not go into the process of it. You all understand that well 
enough. This process may go on, and it will not in any way affect any 
of the economical conditions bearing either on the currency or the trade 
of the country. It can not, in any degree whatever, affect the outflow 
of gold. That is independent of Government transactions: it is purely 
economical. It is a question of exchange brought about by various 
causes. For instance, it is estimated that Americans spend abroad 
every year $90,000,000. Another $60,000,000 goes abroad for interest 
on various investments in this country held abroad. That is 
$150,000,000. Add to that $25,000,000 or $30,000,000 paid out for for- 
eign freight and $10,000,000 for insurance and sundries, making in all 
$195,000,000.. Say that we receive $10,000,000 from immigrants who 
come into this country. There would be still left $135,000,000 in the 
nature of maturing obligations against the country, independent of any 
commercial transactions. 

Now, Mr. Chairman, there are only two ways by which that immense 
amount of maturing obligations can be paid by this country — that is, 
by the product of its soil and industry, or by its gold and silver. Of 
course, gold and silver produced from our mines in excess of our own 
local needs are as legitimate an article of export as cotton, wheat, or- 
petroleum. But we are met by this fact: If our exports exceed our 
imports by $100,000,000 year after year there is still a variable balance 
of trade. Now, the Government does not occupy any position by which 
it can come in and arrest that tendency and that outflow of the precious 
metals. It is irarely a question of commerce and trade, and to com- 
merce and trade it must be left. The Government is as powerless in 
the matter as a 10-year-old child. Selling bonds will have no effect 
upon it. And I will inject this remark just here : It has been frequently 
urged on the Government to sell its bonds abroad and import gold. 
You can bring the mountains of Switzerland here just as well as you 
can do that. So long as these conditions exist gold will leave the 



NATIONAL CURRENCY AND BANKING SYSTEM. 129 

country, and the question which forces itself to-day on every reason- 
able man's mind is this, How long will that continue and the country 
remain on a sound financial basis? 

I am not an alarmist. I have been in the banking business all my 
life, from a boy up. I have been through all the panics, but I will confess 
that I have never seen the time when I felt more uneasiness in regard to 
the future of the country than I do at this hour. The question, gentle- 
men, is, How can this outflow of gold be arrested and the danger to our 
national finances be overcome? There is but one single way by which 
any country can arrest any undue exportation of its precious metals. 
That thing comes (whether voluntarily or otherwise) through an adverse 
condition of exchange which demands exportation of the preciousmetals, 
and which reacts on the banking interests of the country, causing the 
banks to contract their loans. That process end s in forcing down prices? 
so that in the country which the gold is leaving and in the other coun- 
tries to which it is flowing prices will be at par, making allowance, of 
course, for the cost of transportation, interest, etc. That is the only 
method by which it can be corrected. 

If, Mr. Chairman, this difficulty is the result of distrust, and if it 
has grown out of the fact that foreigners have sent home our securities 
in large amounts, the trouble will probably pass away during the com- 
ing winter and spring. Congress can do much to relieve all this dis- 
trust. Nay, it can do enough to build up confidence and bring tens and 
tens of millions of dollars of foreign capital into this country, and then 
certainly this movement of gold would be arrested and the country 
would have nothing to further fear. But if this outflow of gold is the 
result of economic causes independent of any purely financial strife, 
gold will continue to go until it has eliminated the surplus currency of 
our circulation — until it has gone in such quantities as will put a pres- 
sure on all the financial institutions of the nation. It will continue to 
go until the people, who are even now crying about low prices, will be 
very glad to sell their products (I am very sorry to say it, it seems so 
cold and cruel) at lower prices than they sell now. I am afraid that 
prices will go even lower before the arrest of gold can be made. 

Mr. Chairman, there have been immense changes in the natural rela- 
tions between the United States and other countries in relation to this 
country during the past four or five years. Some years ago I warned 
Western and Southern men against the probability of low wheat and 
low cotton. I told them, (that which has now become a fact) about 
Russia extending her railways into Western Asia, about Egypt raising 
wheat, and about India drawing from London £91,000,000 every year 
for seven articles of raw material — wheat, cotton, opium, rice, etc. 
To day the United States stands confronted with a competition which 
it never had dreamed of, and which apparently very few people in the 
country to-day seem to know anything about. It has western Asia, 
with Russian railways to bring its products to market. It has Egypt, 
it has India, and it has South America in its sweep. It is hard, dread- 
fully hard, on the farmers of the United States. But those who stand 
nearest to the soil have, from the foundation of the world to this hour, 
always had a struggle for a very moderate existence. I see no reason 
to believe that there will be any change in the future, but I see many 
reasons to believe that all the wheat and cotton producers of this 
country have got before them a long competition, and they must suffer 
mercilessly from countries where labor is cheap and where the govern- 
ment does all it can to bring the products of the country into market. 

These questions, gentlemen, all affect the finances of the nation, 
NAT our 9 



130 NATIONAL CURRENCY AND BANKING SYSTEM. 

because they all act to produce an adverse condition of exchange. 1 
need not say to so intelligent a body of men that if we send abroad less 
cotton, less wheat, less corn, less petroleum, something else musi goto 
take theirplace. I can see but one remedy, and that is brains. Brains 
in everything, in farming as well as in banking and manufacturing, 
must produce as cheaply as possible, and the country must 
(and it will) enlarge its lines of exports, and so, perhaps, arrest or retard 
the outflow of gold. 

But, Mr. Chairman, to bring this question right down before us. The 
question of the hoar is what methods Congress can adopt that would 
put it in the power oi the country to arrest in a natural way this out- 
how of gold and lo relieve the impending danger which hangs like a 
pall over our whole land. Congress must do thai which should have 
been done, in my judgment, a quarter of a century ago, relieve the 
interference of the Government with the commerce and trade of the 
individual. I speak- with positiven ess, because that is my way, and I 
cannot stop to pick out tine words, dust so long as the Government of 
the country stands between the manufacturer, the merchant, and the 
banker in every transaction there can be no certainty in the results of 
the labors of any of them. 

Mr. Chairman, I stand here to-day before you gentlemen of -a wide 
experience and versed in the study of Legislation, and I must say that 
while I speak with confidence, I wish also not to be charged with a 
lack of respect and ol modesty. But these things are not new. His- 
tory repeats and repeats itself*. I will venture to say that, any gen- 
tleman in this land may bring forward the most original financial 
thought that has been expressed in this country in the last thirty years 
and I will agree to duplicate everyone of those thoughts and show them 
to be a hundred or two hundred or lour hundred years old. The mer- 
chant has suffered for generations and generations from tin; claims of 
kings, ministers, parliaments, and legislative bodies. He has suffered 
from a lack of their comprehensive knowledge; of the principle of cur- 
rency. And, therefore, while 1 do not intend to pass censure or even 
criticism on the great legislative body of this country, I do want to speak 
with such earnestness as, if possible, to impress you gentlemen with the 
immense responsibility that rests upon you. This country can not 
escape disaster unless something is done, and done quickly. I did not 
hesitate in 1880 to say that the resumption of specie payments did not 
settie a single financial question, and that every one of them would 
come up against, us. 1 was also bold enough to say that if financial 
laws were not changed this country would pass through one of the 
most severe panics and periods of commercial disaster ever known j 
but i was only applying a little part of history to it. 

Now I will bring the question down to practical propositions and 
practical legislation. Sow can the Government get out of this matter! 
It seems to me that the method is simple. Let Congress pass a good 
banking and currency act. Make a part of this act (and you can not, 
in my judgment, have a good banking and currency unless you do so) 
the gradual withdrawal and destruction of the legal tender notes. 
Much as the old State banks have been censured and maligned, the 
country never suffered the annual depression, the severe constrictions 
m moving crops which it has suffered under our present financial sys- 
tem. With a circulation thai never- exceeded, at its highest point, 
$200,000,000, there never was any difficulty then in moving cotton, corn, 
and wheat to market. The notes of the State banks expanded. The 
wheat, cotton, and (torn (tame to market, and the notes followed and 



NATIONAL CURRENCY AND HANKING SYSTEM. 131 

went into the banks and remained there until another occasion of a 
similar character occurred. 

Cau we, with our present currency, to day do that work which the 
old State-bank currency did so well? As a Little matter of history, I 
want to say that 1 do not believe that Connecticut could have equipped 

her soldiers tor the tield in the late war had it not been for the old 
State bank circulation. The greenbacks had not become plentiful 

enough, nor the national-bank notes. In my own institution we never, 
up to the time of the war, had been able, with the capital of $300,000, 
to get out $225,000 of circulation. Under every effort we made to keep 
it out it remained about $125,000, and even then we used to send it to 
Ohio. Illinois, and Indiana. But the work of preparing our soldiers for 
the field demanded more money, and ran our circulation up to $230,000. 
Wo practically violated the law to that extent, but the Stal 
funds, and, if it had not been tor that. Connecticut would have been 
very much embarrassed in preparing her soldiers tor the tield. 

ter twenty-iive years of study and thinking about banking matters 
I want to state right here frankly that I do not come before you as a 
novice presenting ideas which have dawned upon my brain during the 
last twelve months, [f such was the case, and if 1 had not given the 
subject exhaustive study, 1 would have had no right to appear before 
you, nor would 1 have a right, in my judgment, to put a single thought 
forward for the consideration of others. 

But any man who has given a special study to any subject, however 
humble and modest his mental capacity may be, is justified, 1 think, 
as the result of those years of study, in trying to impress his views 
upon others. Of course, others need not take them unless they 
choose to do so. 1 did not intend to bring forward any plan of my 
own in reference to the currency question, for the simple reason that I 
did not personally wish to do anything which might make me considered 
as in any degree antagonistic to what is called the Baltimore plan. 
That is the first concerted action on the part of bankers to obtain any 
Legislation in regard to banking and currency. But it is not in every 
respect just what 1 want, and L hope that in the final draft of the bill 
it will be somewhat modi tied. 

I have refused to make my own views public until a few days ago for 
just that reason, but when 1 saw in the papers that the Secretary of the 
Treasury would recommend a bill to Congress 1 felt that there was no 
need of my keeping back, because I know that any views which I may 
expi ess would not be considered antagonistic to the Baltimore gentle- 
men. L want to say that injustice to myself, and also injustice to the 
Baltimore people and the Baltimore plan. 

The bankers in Baltimore have done something which I have never 
known banking men to do before in all my experience. Bankers are 
the worst kind of people for combining, and I want to pay to the Balti- 
more people my unqualified approbation in that respect. If Congress 
will pass the Baltimore plan I have nothing to say; but if this com- 
mittee is going to prepare, as it probably will, a measure for consider- 
ing the Baltimore plan ami the Comptroller of the Currency plan and 
the plan of the Secretary of the Treasury, then I do not know why I 
might not come forward and put in my little plan. 

I differ somewhat from either of the other plans, not in their funda- 
mental features. None of these other plans provides for redemption in 
a large city like New York. Now, 1 think that a redemption bureau 
located in the city of New York is vital to any system of paper money. 
There is no reason in the world why such a bureau should be located 



132 NATIONAL CURRENCY AND BANKING SYSTEM. 

in Washington. Lt is not a governmental office. It has no connection 
with the Cabinet. The Comptroller of the Currency has nothing to do 
the President and has very rarely to consult with the Secretary 
of the Treasury. His busi tess is thoronghly a financial banking busi- 
[is office is the head office of the national banking system, and 
it should be located in the greatest financial center of the United States. 
That will make redemption so effective that there need not 
any inflation. 

I want to lay stress on that particular feature, and I also want to lay 
all the stress th : I ssi ly can on the ninth section of the plan which 
I submit, and that is that for every 1 100,000 ot bank notes put into 
circulation there shall be 175,000 of legal-tender notes retired. The 
amendment which I have sketched out would require a reserve of 25 
per cent in sj _ir, so that if a bank issues $100,000 of currency and 
Ml in specie that will leave the currency in precisely the 
same amount as before. 

But it may be said that this will not operate to prevent a redundant 
currency: but such is not the case. Put the redemption agency in 
2^"ew Y _ : id I will guarantee that no bank will hold on to the notes 
of :her banks. Every banker will be against every other banker in 
the country, and will send the notes of other banks home just about as 
fast as they are i ed, s< is to make space for his own notes. That 

wil ^ave a tendency to localize the circulation: that is. the circula- 
tion of each bank will have a radius around its own institution, instead 
of spreading all over the country, and it will relieve any superabundant 
currency that may be in circulat: 

I will not say that there may not be a little element of inilation from 
any rjaper money convertible into specie on demand, but I say that if 
the plan which I have sketched shall become law that inflation can 
a be any but a very slight one. It never can be so great as to 
jeopardize the solvency of the institution or the permanency of specie 
payment. I have no hesitation in saying, gentlemen, from an experi- 
ence of thirty years as a banker, and as a man who. although young at 
the time, took a great interest and prepared very elaborate tables of 
the circulation of Connecticut banks and of redemption through the 
Suffolk bank stem — I have no hesitation in saying. I repeat, that if 
Congress will adopt any one of the bills before you. giving a little 
: scope to the Baltimore plan and putting this redemption feature 
into the plan of the Secretary of tne Treasury, this country will have 
the :em of banking and currency which the world has ever 

k Lam not afraid t stai 1 before you gentlemen and stake my 

reputation upon it. and I would even go farther if this were a mon- 
d would stake my life upon it and not fear taking any risk. 

J istone word more and I am done. The question comes. How shall 
I with the State bank 
hairmak. I suggest that you read a brief synopsis of your 
plan. 

Mr. Bailee. I formulated my ideas very briefly into the draft of a 
bill as folk 

AMEXDMEXT TO THE NATIONAL BA>"Ta>TG ACT. 

rlating to the deposit of Unit ed States 
rhe e 1 re illation of the hanks, and in any vray relating to such bonds. 

id. Banks organi - 1 under the rational hanking act. or that may he organized 

nnde: e I ram the Comptroller of the Currency circulating notes 

to the amount of 75 per cent of their paid up and unimnairf d capital. 



RATIONAL CURRENCY OTE BANKING SYSTEM 133 

f the den lal than $10 are tea i by pre 

t shall kee] reserve : .- i 25 percent fit 

1:l _ 
Fifth utile ndJulyofe 

to the Treasurei of the Unit sd Stat of 1 pel ula- 

tion for the 

months, until soeh tax. shall have formed a fond to the anionx: il ftei 

a such ehai gc Lded; then-thei 

-iniannual tax shall be one-half pei sent upon th a each 

slsil fter, until 1 mount t 

~_r -emiannual tax shall I -i ~ sent i i sh six ■_:..-. 

shall amount tc the sum if $20,( 

Wheneve: m ant to the sain of fj : Her of 

the Cun sney aha] soeh per eent 

ry to defray all of tfa > - . ■.: 

»f th ad to kee] id fund 

mptrclle: xf the an sney shall not " raiegi ter th 1 

i_- if in the avea . : ire oh ~: a foi - _ six m ] atfa if eaehyeai 
urer oi the -:dd fund, created and maintain el 

semiannual tax at . :: separate nd rt fi my U : _t ^en- 

It shall oot - any pan f t 

fund, nor shall t entered into any statement : _ L- res orees ^d liabiliT 

the Unitel- States 

Sixth The Tie surca if the United St tea sfa Qprovidi _ alt for the - - 
ing of said fun L which v dt shaH be known as the national- h: ti rod hall 

be used ior no other puri : se than mat : _ - inks 

The said fond shall I e lesign E I and known s the _ : ran ty fund oi the oat 
banks. The Treasurer shall provide booke ~L: ih shall he kept odused fm 
fund only. The Treasurer shall pay out of said fund thee stofpi iig vaults nd 

B : keeping thereof, and shall payout of said fund the si :: preparing xlatos 
from which the notes :: the .11 be prixTT together with expense* :: 

| tinting and delivering the notes to the banl:- I every t:; ease : the le rtment 
of the Comptroller of The 1 :: _". andfora- :: lei _ It rtment u 

tea i :led. and the balance of said fund shall be kept for the s - ox] :: 
redeemingali notes li z-olvent bank? that may not n lets sufheic at E 

the lei te c : so :-h insolvent banks. 

7_r department of the '1 :: Ilea : :1t C urrency shall be lo *te 1 in the ity : : 

^ew York, and the 25 pei sent reserve shall 1 5 kept *t rh i-~ : :_tl: : : tLt ~_ _~ - 
trollcr f the Currency I_t Secret :~ if :_r Tre :_t Cnited States shall 

buy a suital Le lot in the ity f New York, and shall ise to be erected tl :eon a 
building such as maybe needed : :Lr Le] rtment : the \ mpboHei : the ur- 
rency. and sh 11 isetx be ere ted in sa : __ ample and s feT alts for the 
safe-keeping of the reserve n the : : sub ■' . : _ f thel oks there shall be : i 
of control, consisting fn t loss than five residents : nks - e selected by the 
clearix, fa use :: the eity : Sew York. The ComptirllrT if the arreney shall be 
chairman of said board of : nti : 

S i 1 board of control shall have shai ge and custody if tberesei ad -hall make 

such regulations for the safe-kee . _ f the reserve s they ma; Leeml sf 

>ne-nftn the reserve sh ill - ander the immediate control of the Conipi: Hea 
of the Currency, for the prompt redempti f all notes resented fbi 

re lemption. 

Four-rifrl- : the reserve sh; U be kej - in - i : lit which shall l»e so con- 

sta ad arranged ad pi 1 with Locks that alt e opened only 

joint turn F a majoi ity : the board : ; atz I 

"Wheneverthr . .: l 1 - : Zr 

"a the am«; ai : : -1 he shall return then . > ~Y: U 

immediately reimburse tLt Uom ptrollei for s h notes Che lot building aults, 

t sh D e paid for out : Lr guaranty : ;nd. 

All banks that shall come under the provision f the national b anking - tier said 
buildings, vaults shall hav L - - _ tax 

i " - I _ hat banks may : . n- 

. g1 ._ Of CUITtL 

The title 1 said lot building, eU si LI be inl Secretary r the Tre sory of 
the United States a trust i rtJ 

In the event ■ : hangeii the nati nal banking act. or in th peal 

which shall nil - erty no longei the se : : it 
iras] sold at public the h ■ _1 . -- : 

:-- laj 1 i the pro- 
led among the ban contribu- 



134 NATIONAL CURRENCY AND BANKING SYSTEM. 

Seventh. Any bank organized under the laws of the State in which it is located 
may receive circulating notes from the Comptroller of the Currency to the amount of 
75 per cent of its paid-up and unimpaired capital, upon a vote two-thirds of its 
stockholders, making the word "national" a part of the legal title of the bank, and 
accepting all of the provisions and conditions of the national hanking act. 

Eighth. The hanks may freely use their reserve in time of panic, or in time of 
great and unusual apprehension and alarm, and such use of the reserve shall not he 
to their prejudice in any manner whatsoever, hut shall be deemed the wise and proper 
use of a fund created by law to be kept through all ordinary times, to provide a fund 
to be used in an emergency. But the banks shall restore their reserves to their nor- 
mal amounts whenever the Comptroller of the Currency shall determine that the 
emergency warranting its use no longer prevails. 

Ninth. For every $100,000 of bank notes put into circulation $75,000 of the legal- 
tender notes shall be redeemed and destroyed. The Secretary of the Treasury may 
sell bonds of the United States in such amounts as may be necessary to carry this 
out. Said bonds shall be for such length of time, rate of interest, and all other con- 
ditions and regulations as the Secretary of the Treasury may deem best. Previous 
acts and laws in regard to the sale of bonds of the United States are not to be con- 
sidered as in any way relating to this act, or in any way restricting the Secretary 
of the Treasury in the issue and sale of such bonds as may be necessary to give force 
and virtue to this act. 

Tenth. Before issuing a certificate authorizing a bank to begin business, the Comp- 
troller of the Currency shall cause careful inquiry to be made as to the character 
and reputation of those proposing to organize a bank, and if they are not found to 
be of good character and reputation he shall not give the certificate. 

Any section or part of a section of the national banking act conflicting with any 
of these amendments thereto are hereby repealed. 

The question often arises as to how tbe State banks are going to do. 
It is a very simple matter. We should maintain, in my judgment, the 
unity of the currency. It should be the same all over the country, 
and therefore any bank issuing currency should issue it as a national 
currency. The word "national" should appear upon it and it should 
be a part of the legal title of the bank. The simple process of two- 
thirds of the stockholders of a State bank voting that it shall be a 
State national bank and that they accept the provisions of the national 
bank act is all that is necessary. There is no use in preparing a 
different kind of note for State banks. That would be a cumbersome 
and embarrassing business. 

]S T ow, Mr. Chairman, I thank you and the gentlemen of the commit- 
tee for giving me your attention, and I will answer such questions as 
any member of the committee may choose to put to me, 

Mr. Johnson, of Indiana. The mode that you suggest for State banks 
coming in under the proposed system really makes them national banks, 
does it not? 

Mr. Butler. Certainly. 

The Chairman. So far as the currency is concerned ? 

Mr. Butler. I do not know why they should not come in under the 
national banking act the same as other banks. If they do not, let 
them not have any currency issued to them. They are national banns 
under the same conditions. 

The Chaieman. You do not require that the State banks shall give 
up their local charters in which they may have special privileges? 

Mr. Butler. If they have some special privileges, they can main- 
tain their charter by complying with the stipulations of the national- 
bank act. 

The Chairman. In view of your own experience as a banker, do 
you think there should be two kinds of currency in circulation in the 
United States, one kind State currency and the other national cur- 
rency? What would be the effect in practical dealings if one of these 
kinds of currency should be deemed a little better than the other even 
without producing a nominal discount? 



NATIONAL CURRENCY AND BANKING SYSTEM. 135 

Mr. Butler. I think there would be a preference given to the notes 
which carried the word "national" on them. 

The Chairman. Then what would be the effect upon the other uotes? 

Mr. Butler. It would tend to limit their circulation very materially. 

Mr. Warner. They would be sent home for redemption more 
promptly ? 

Mr. Butler. Yes. 

Mr. Warner. As to that matter of redemption, you are familiar 
with the Suffolk plan by actual experience'? 

Mr. Butler. Yes. Let me say one word as to that. After this large 
expansion of the notes of our national bank to fit our soldiers for the 
field, our excess of currency came back inside of ninety days and we 
never could put it in circulation again. That is the important part of 
the whole thing. 

Mr. Warner. In your mind the elasticity of circulation results 
first from a lack of obstruction in putting it out, and then from a lack 
of obstruction to paying it in by those who hold it? 

Mr. Butler. Not wholly. Banks must have in their possession an 
amount of notes in excess of what they keep out. 

Mr. Warner. You mean till-money? 

Mr. Butler. Yes. 

Mr. Warner. But with that exception, that will be the case? 

Mr. Butler. Yes. 

Mr. Warner. Your suggestion is that the present redemption facil- 
ities should be added to by having such facilities for redemption at one 
great city like New York, or at several centers, so as to bring in the notes 
more promptly for redemption when they are not needed for business? 

Mr. Butler. I would have the main redemption bureau in the city 
of New York. 

Mr. Warner. With theobject of bringing in the notes more promptly 
when they are not needed for business? 

Mr. Butler. With that sole object; for a speedy, prompt and forci- 
ble redemption. 

Mr. Warner. Somewhat in the manner, and with the intention of 
having a similar effect, to that which we experienced under the Suffolk 
bank system? 

Mr. Butler. Yes. 

Mr. Warner. Yesterday a distinguished banker expressed afear that 
if that extraordinarily prompt redemption which used to be attained 
by the Suffolk bank system should be applied to all the currency of 
the country we would be in danger of a terrible currency famine. 
Have you any such apprehension ? 

Mr. Butler. It could not possibly happen. 

Mr. Warner. You have no apprehension of that at all? 

Mr. Butler. It could not happen. 

Mr. Warner. Your idea is that the greater facilities there are for 
redemption the better? 

Mr. Butler. The greater and sharper the redemption facilities of the 
country are the greater work the currency will perform. I make the pre- 
diction that if you carry out any of the plans before you (whether the 
Baltimore plan or the plan of the Secretary of the Treasury or my own 
plan) and put a redemption bureau in the city of New York the business 
of the country could be carried on better with $200,000,000 less currency 
than there is out to day through the effectiveness of redemption and 
through the activity of circulation. 

Mr. Warner. The amount of circulation would thus adjust itself 
automatically to the business needs of the country? 



136 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Butler. Undoubtedly, unquestionably. 

Mr. Warner. And that is desirable? 

Mr. Butler. It is the most desirable thing. 

Mr. Warner. And you do not believe there would be any dangei 
in it? 

Mr. Butler. I think there could not be. I will go further and say 
that that is the one great dominant virtue — that the redemption system 
would act as a financial barometer to every bank in the country, notify- 
ing them of danger. Whenever there is a little disturbance in business 
there would be an increased redemption of the notes of the bank, and 
the moment their notes came back to thein in a little larger quantities 
they would know that there was a little overtrading and that there 
was danger ahead. 

Mr. Warner. If the Suffolk bank system were so perfect in its oper- 
ation would it not be fair to assume that if the Government repudiated 
all responsibility for the redemption of notes the banks would arrange 
a volunteer plan very much better than the present plan? 

Mr. Butler. The Suffolk bank system was only local. It was a 
New England institution. Bankers are a pretty good kind of men, but 
you can not trust them in everything. 

Mr. Warner. Did we not have a pretty good system in New York 
at that time? 

Mr. Butler. Yes. 

Mr. Warner. And, in fact, was there not a pretty good system in 
every part of the country where finance was well developed? 

Mr. Butler. The notes of our bank were sought in almost every 
State in the Union. 

Mr. Warner. And they came back for redemption? 

Mr. Butler. They did, and we always took care of them. I have 
talked with a good deal of confidence before you, and now I want to 
give you one little bit of personal reminiscence and history which 
I hope will help to give what I have said a little more weight than it 
perhaps would otherwise have had. The institution which I have 
the honor of representing, beginning witli the panic of 1873, had never 
failed to cash any note presented to it. It had never failed to furnish 
cash for the pay rolls of its manufacturing customers. It had never 
refused a dollar of discount to any of its customers up to the maximum 
which it had promised to supply; and it never lias borrowed a dollar. 
But I do not hesitate to antagonize the interest of bankers in large 
cities, and in my own city, and I say that a reserve of 25 per cent in New 
York, Philadelphia, Boston, and Chicago is not enough. It has been 
proved over and over again that it is not enough, because, let the New 
York bankers say what they will, they do suspend in every panic and 
we do not. The New York Clearing House is simply a cash suspension. 

Mr. Warner. The other bankers have their deposits in the New 
York banks. 

Mr. Butler. Yes; and the draft upon them on that account is larger. 

Mr. Warner. They — the New York banks — have to carry the outside 
bankers in this fashion. That is the trouble. 

Mr. Butler. Yes. I said just now that bankers are a good class of 
men, but you can not trust them entirely. The desire to make money is 
too strong. Now, the problem of a large reserve and yet a flexible 
reserve is a very delicate one. In my pamphlet I have attempted to 
deal with it, and I think quite successfully. That is, that the banking 
act should compel the banks in the large cities to keep a reserve of 
33 ; ^ per cent. In cities of over ten thousand inhabitants I am inclined 



NATIONAL CURRENCY AND BANKING SYSTEM. 137 

to think tliat there should be an average reserve of 25 per cent, and in 
smaller towns a reserve of 15 per cent. 

Mr. Warner. And they should not be allowed to deposit the greater 
part of it in the city banks? 

Mr. Butler. They should keep a part of it at home. We never go 
along ourselves with a reserve less than 25 per cent. Our state- 
ments to the Comptroller of the Currency will show that our average 
reserve is larger than 25 per cent. Of course we could not go through 
the panics as we did if we did not keep a larger reserve than 15 per 
cent. Now, 1 come here as a banker and I antagonize my own busi- 
ness and I say make it expensive for the banks to issue too much cur- 
rency. If you give them the right to issue currency, make it expensive 
enough on thein to make the currency good. Give the country as good 
a currency as it can get. If the banks do not wish to pay the expense 
of this good currency they are not obliged to take out. There are 
other banks that will take it out, and the man who wants to growl 
about it, let him growl. 

As to the guarantee fund, I made some figures embracing twenty-nine 
years of the national banking system. Take all the national banks that 
have failed within that twenty-nine years and if you had not only made 
the notes payable out of this guarantee fund, but the deposits also, that 
fund would have paid every dollar lost by depositors as well as every 
dollar of notes, and there would have been more than two and a half 
times the amount left in the Treasury. In other words, in the twenty- 
nine years the banks have paid into the Government seventy-nine 
millions as a tax on their circulation, and if that had been applied to 
paying the depositors in failed banks as well as the notes of failed 
banks, it would have paid every dollar of it and still left fifty-two mil- 
lions in the Treasury. Now, an experience of twenty-nine years that 
leaves such a result as that gives no ground to any fair-minded man 
to complain that the currency of this country is not safe as it can 
possibly be. There is no more possibility of a man losing a dollar now 
under the Baltimore plan or under my own than there is of his being 
translated. 

Mr. Warner. Is there any danger under the Secretary's plan ? 

Mr. Butler. I do not think so. 

Mr. Cox. I want to draw your mind back to the State-bank system. 
You made the remark that when these State banks were in existence 
there was no difficulty in moving the crops and that they were a great 
aid in that purpose. Now, if the State banks should make their notes 
as safe as the notes of the national banks can there be any objection 
of their issuing bank notes? 

Mr. Butler. In some respects I am very much in sympathy with 
your question, for the reason that I have never believed that, strictly 
speaking, the Government of the United States has any business at 
all in reference to banks, 

Mr. Cox. I agree with you there. 

Mr. Butler. And certainly has no business to make a note legal 
tender. Anybody who studies the Constitution and reads the decision 
of the Supreme Court of the United States in relation to legal tender 
is perfectly confounded. The Government lias one power over banks, 
and that is the power of taxation. It can tax us out of existence, but 
it can not tax us into existence. But, as the country has settled down 
to the idea of a national banking system, and has become so imbued 
with the beauties of the unity of circulation, and as I no longer believe 
that it is worth while to struggle against the unconstitutional decisions 



138 NATIONAL CURRENCY AND BANKING SYSTEM. 

of the Supreme Court (at least what I consider such) it lias become a 
matter of general acceptance, and there is so much value in a unity of 
circulation that I think the State banks ought to be willing to give way 
to it. 

The value of having all the currency throughout the country of the 
same kind is very great, and nobody is contending to-day, and never 
will contend against the right of the General Government to pass a 
national banking law. That power is conceded, and bowed down to 
(though with very stiff knees on my part). If Congress has any right 
to do anything with the currency at all except to coin gold and regu- 
late the value of coins, I think that the banking system should be 
made one which applies to the country as a whole, and that any bank 
which wishes to issue notes should come in under the national bank- 
ing system. 

Mr. Cox. You have put your answer entirely on the ground of unity 
of system? 

Mr. Butler. Yes. 

Mr. Cox. Is it not now the case in this country, and is it not well 
known in all financial centers that, in certain places in the country, 
there is more money than there is any use for, and that in other places 
(especially in the South) there is hardly enough mo ney to transact busi- 
ness? Do you not find that state of affairs now? 

Mr. B utler. That we can not remedy. Money goes where the accumu- 
lation of wealth is. I was passing through Alabama and Louisiana some 
years ago in an observation car with several Southern bankers, and one 
of them said to me: "What we want, Mr. Butler, in the South is more 
money." I said, "What for?" I said, "If you draw a check upon a 
bank for $1,000 and you have an account there to that amount have 
you any trouble in getting the money?" "No." " If you sell 100 bales 
of cotton to a responsible man have you any trouble in getting the 
money for it?" " No." "If a responsible man owes you $1,000, have 
you any trouble in getting paid?" "No." "Then," said I, "what do 
you want more money for ? " He said, " To develop the country." " Oh," 
said I, "what you want is more capital." "Now," I said, "I can not 
conceive how under heaven the Government can put the money in circu- 
lation at all ; but suppose the Government can do just as a great many 
people in the South and West want it to do, give us more money, what 
will be the result? Perhaps 10 per cent of it," I said, "will stay with 
you because it will cause a slight rise in prices. The 90 per cent will 
go to New York and New England banks because those States hold the 
accumulated capital of the country, and money goes where capital is. 
By this inflation 3^011 would have created a condition of things where 
you would want 10 per cent more circulating capital for business, but 
you have not created anything from that capital and you have put your- 
self in a tighter box than before." That is the operation of inflation, 
and it must be so. Yet the people who do not make a study of this 
thing do not understand it, and a great many people can not compre- 
hend the subject anyway. 

Mr. Cox. Your idea was that there is no necessity for any State 
institution in the way of banking, but the ground you put it on a 
moment ago is that we must have a unity of currency. My first ques- 
tion assumed the issue by State banks of notes absolutely good. It is 
not a question for us to decide whether the people need those notes or 
not. Can it be possible to pass any note except it is absolutely good 
over the counter of a bank under the present condition of things? 

Mr. Butler. In answer to that I will say that while I am only giv- 



NATIONAL CURRENCY AND BANKING SYSTEM. 139 

ing my own personal preferences, if a bill were prepared giving to 
State banks a little peculiar advantage in regard to that, I would not 
be antagonistic. I do not think it vital, but I prefer the other way. 
That is all a matter of preference. 

Mr. Cox. Always assuming that the currency of State banks is good, 
you see no objection to its issue? 

Mr. Butler. No. 

Mr. Johnson, of Indiana. Aside from the question as to the consti- 
tutionality of the law taxing State-bank issues, are you not of opinion 
that soundness and uniformity in the currency is much more likely to 
be secured and maintained by one system of note issue under direct 
Federal control, than by leaving each State to devise a system of State- 
bank issue for itself? 

Mr. Butler. There can be no question about that. 

Mr. Johnson, of Indiana. Is it not your opinion that a change in the 
existing currency system, along the line of the Baltimore plan, which 
will dispense with rigid bank security for circulating notes and supply 
a flexible currency, obtained under what is known as the safety system, 
will meet, as far as possible in the nature of things, this complaint of 
lack of money in the rural and sparsely settled districts where money 
is wanted at some time to move the crops and is not so much needed 
at other times? 

Mr. Butler. I recognize that there are a good many places where 
there are small banks and where the need of facilities for circulation is 
just the same. A local bank, though small, will be able to give you all 
the local circulation you want, in my judgment. 

Mr. Johnson, of Indiana. You were asked if you thought it possible 
that bad State bank notes could be paid out over the counter of a bank. 
Now. is it not a fact that under what is known as the old State-bank 
regime which prevailed in this country before the war that was often done? 

Mr. Butler. Yes; that was often done. 

Mr. Johnson, of Indiana. Also, that the trouble with bad currency 
consists in the fact that it gets into circulation under the impression 
that it is good, whereas in point of fact (owing to some defect in the 
law or to some administration of the bank) the bank is not sound, and 
immense loss is occasioned to the public? 

Mr. Butler. Under any system that we are contemplating now, the 
provision which admits any State bank presupposes that the Comp- 
troller of the Currency sees that it complies with all the conditions 
required of the national banks. 

Sir. Johnson, of Indiana. Does that not make it a national bank? 

Mr. Butler, Practical^, but the State banks maintain their sepa- 
rate charters all the same. 

Mr. Johnson, of Indiana. Is it not a fact that during that old regime 
bank notes circulated right along at a discount, and that the necessi- 
ties of some men and that the exegencies of trade required people to 
take these bad notes at a discount? 

Mr. Butler. There were bad notes in circulation, and considerable 
evil was caused by them. 

Mr. Johnson, of Indiana, Is it not also.afact that bad bank-issuing 
systems in this country were maintained in some States right along, 
notwithstanding better examples afforded by good banking systems in 
other States ? 

Mr. Butler. The banks in some States were very much better than 
in others. I do not want to say that any were bad, but some of them 
were rather defective. 



140 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Indiana. In your opinion are there not more oppor- 
tunities for failure from having a number of systems of note issues than 
from having* one simple system? 

Mr. Butler. I think that that is possible. I would not wish to call 
it probable, but it is possible. 

Mr. Cobb, of Alabama. Do you believe that there would be any 
material danger in repealing absolutely the 10 per cent tax on State 
banks? 

Mr. Butler. Yes; very probably there would be. 

Mr. Cobb, of Alabama. With the condition of the country so varying 
from what it was in former days? 

Mr. Butler. I would not do it. I want it distinctly understood that 
I would not favor any paper money of any kind except by the with- 
drawal of some other, unless it were to meet a certain political 
emergency. 

Mr. Cobb, of Alabama. Is there to-day existing a condition of things 
under which wild-catting is possible? 

Mr. Butler. There is very little wild-catting now. Banking has 
become more widely known and banking men have become better 
known to each other. Any bank that would attempt anything of that 
kind would be crushed out very quickly, almost before it got started. 

Mr. HAUGrEN. How crushed out — by legislation or by public opinion? 

Mr. Butler. If I thought that there was wild catting going on, I 
would sit down and write to the Comptroller of the Currency that he 
had better investigate it. 

Mr. Haugen. If the State-bank tax were repealed, there would be 
no jurisdiction over State banks on the part of the Comptroller of the 
Currency. 

Mr. Russell. Under the Secretary's plan, the Comptroller of the 
Currency would have no right to make that investigation. 

Mr. Butler. I believe, as things are to-day, that we should confine 
ourselves to one kind of currency. 

Mr. Cobb, of Alabama. Have you any such provisions by the banks 
themselves? 

Mr. Butler. We have between ourselves. 

Mr. Haugen. In Wisconsin we have a State banking law under 
which wild-catting was done before the war, and the only thing which 
has kept the banks there from operating under that system is the impo- 
sition of the 10 per cent tax. The State law never has been changed. 
It remains now upon the statute books. 

Mr. Butler. I am not in favor of an unconditional repeal of that tax. 

Mr. Cobb, of Alabama. Do you believe that the condition of bank- 
ing in this country now, and the condition of the country generally, 
does not make it impossible for a State bank to issue and circulate 
money that is not secured? 

Mr. Butler. I think that such circulation would be very small. 

Mr. Brosius. Does your plan contemplate the ultimate responsi- 
bility of the Government for the notes issued? 

Mr. Butler. No, it does not. I do not think, myself, that a Govern- 
ment guarantee is necessary. 

Mr. Brosius. Your plan contemplates a specie reserve of 25 per 
cent, does it not? 

Mr. Butler. Yes. 

Mr. Brosius. And that reserve shall be put under the custody of 
the Com])troller of the Currency — a certain percentage of it — and that 
the remainder of it is to be under the control of the board of control. 



NATIONAL CURRENCY AND BANKING SYSTEM 141 

Then I find in another section of your plan that the banks are per- 
mitted to use a portion of that reserve. If a bank is permitted to use 
a portion of that reserve which is locked up under the control of the 
board of control, how does the bank get the reserve for use? 

Mr. Butler. I meant to have inserted a word there. I am referring 
in that clause to the reserve on deposits, not to the reserve on circula- 
tion. I want to put in the word u deposit : ' there, as it escaped my mind. 

Mr. Brosius. Then that reserve, as I now understand you, is not 
available as security for the circulating notes'? 

Mr. Butler. The 25 per cent specie reserve is. 

Mr. Brosius. Where does that remain? 

Mr. Butler. In the department in New York, if the department 
were removed there. I for one would keep banking as free from 
Government as I could; so I selected that board of control to be 
located in the monetary center of the country. 

Mr. Brosius. You have stated that the present banking system 
lacks elasticity. Have the kindness to hear this statement: 

The estimated circulation on July 1, 1893, was $1,593,700,000. This increased in 
three months to $1,700,000,000. and by February of this year reached in round numbers 
$1,740,000,000. From July to May it declined' to $1,690,000,000. In other words, the 
past ten months have witnessed an expansion of onr circulation of nearly $150,000,000, 
followed by a contraction of about $50,000,000, leaving the present volume about 
$100,000,000 more than that of July 1, 1893. 

Xow, my inquiry is, whether that does not exhibit a considerable 
degree of elasticity in the present system of banking. 

Mr. Butler. To some extent it does, but not. in the way in which I 
use the word "elasticity" or in the way in which Mr. White used it. But 
expansion and contraction in the ease you have read are arbitrary. They 
have not grown out of any industrial or commercial transactions. What 
I mean, and what Mr. White means, by an elastic currency is this: A 
currency with which the banks will have at all times notes in excess of 
what they can keep in circulation throughout the year, and that they 
will have idle notes in their vaults which they can use at the time of the 
moving of the great crops. The low interest paid on our Government 
bondsand the high market price for them prevent the banks from taking 
out a single dollar of circulation except such as they can keep out at all 
times. Therefore, there is no expansion and there is nocon traction there. 
These are not the contraction and expansion which affect commercial 
transactions. The expansion is merely that which follows legislation in 
regard to coining and printing money on the one side, and on the other 
side the contraction comes from banks which rind it more profitable to 
surrender their circulation than to take in their bonds. 

Mr. Brosius. The secret of elasticity consists, does it not, in having 
the notes to put out when they are needed and in taking them back 
when they are not needed \ 

Mr. Butler. I could not put it any better. 

Mr. Brosius. What idea did you intend to convey to the committee 
when you said that the Government should be prevented from inter- 
fering between merchants, manufacturers, and bankers in their trans- 
actions with each other? 

Mr. Butler. That is one of those cases where my words were per- 
haps not so felicitous as they would be if I had sat down and thought 
them over carefully. I did not mean any direct interference, but I 
meant the fact that the Government was so involved in the whole sys- 
tem that there was a general interference, not an individual and per- 
sonal interference, but one inherent in the system. 



142 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Brosius. Do you m^an to say that that interference inheres in 
the system of issuing Government paper? 

Mr. Butler. Yes, and in the arbitrary coinage of silver. ' 

The Chairman. A portion of the flexibility to which Mr. Brosius 
refers was caused, was it not, by the purchase of 4,500,000 ounces of 
silver a month under the Sherman act? That caused the elasticity. 

Mr. Butler. ISTo, that is expansion; it is not elasticity. 

Mr. Warner. In regard to the withdrawal of greenbacks, I under- 
stand that you are very much in favor of the withdrawal of the green- 
back circulation? 

Mr. Butler. Yes, I am. 

Mr. Warner. What is the method which, in your opinion, should 
be adopted for that withdrawal? 

Mr. Butler. 1 would have any withdrawal of greenbacks by the 
Government made very carefully, so that it would not in any way pro- 
duce any contraction or jar on the finances of the country, and I do 
not know any better way than to have that withdrawal follow the issue 
of bank notes. 

Mr. Warner. You would have the withdrawal or the circulation of 
the greenback currency made a condition precedent to the issue of new 
currency? — or would you provide for it by some separate provision? 

Mr. Butler. I would make it a part of the bill. 

Mr. Warner. It would be one way to meet your views if, by a sep- 
arate section, the bill shall provide that the Treasury should have the 
right to fund a certain amount of greenbacks in proportion to the 
new currency to be issued. 

Mr. Butler. That I have in my proposed bill. 

Mr. Warner. It would also come within your general statement if 
it were provided (as it is in Secretary Carlisle's plan) that on the issue 
of more currency a certain amount of greenbacks should be sequestrated, 
as it were? 

Mr. Butler. Yes; I think it very desirable. 

Mr. Warner. In the first case the withdrawal of greenbacks would 
not be a tax on the new currency? 

Mr. Butler. I do not know that I quite catch your idea. 

Mr. Warner. If it is made a condition of issuing new currency that 
the bank issuing it shall sequester a certain amount of greenbacks, is 
not that a practical tax on the issue of new currency? 

Mr. Butler. I did not mean that. The Comptroller of the Currency 
issues to a bank $100,000 in notes, and immediately turns over to the 
Treasurer of the United States or the Treasury of the United States 
and immediately gets possession of $75,000 in greenbacks. If he has 
not the cash in tire Treasury authority is to be given to sell bonds. 

Mr. Warner. A plan has been prepared by which, as a condition of 
getting out currency, the bank that is permitted to issue it shall attend 
to the sequestering of a certain proportion of that amount in green- 
backs. The result of that is, is it not, a practical obstruction to the 
issue of currency to the extent of the interest that is lost on the green- 
backs so sequestrated? 

Mr. Butler. Do I understand you to mean that the banks are to 
become possessed of a certain amount of greenbacks and to destroy 
them? 

Mr. Warner. No; but to lock them up; to put them in the 
Treasury. 

Mr. Butler. And ultimately the Government has to redeem them? 

Mr. Warner. I suppose that ultimately the Government will have 
to redeem them. 



NATIONAL CURRENCY AND BANKING SYSTEM. 143 

Mr. Butler. It seems to me that Secretary Carlisle injected a polit- 
ical element into his bill. It seems to me that he thought that that 
would be a method by which some parties might be induced to retire 
the legal-tender notes, by the banks issuing them as a part of their 
reserve, and in that way getting them out of the way and putting the 
Government in the position to pay them. I take that to be rather the 
object of getting these greenbacks out of circulation, but it does not 
produce any economic effect. 

Mr. Warner. Is it not an obstruction to the issue of currency to the 
extent of the loss of interest on these greenbacks? 

Mr. Butler. Certainly. 

Mr. Warner. And does it not tend to raise the rate of interest? 

Mr. Butler. No • that is a mistake. It will add to the cost of doing 
business. Suppose after I get home I should find that the board of 
directors had voted to double my salaiy, that would add something 
to the expense of the bank, but it would not add anything to the rate 
of interest charged to its customers. 

Mr. Warner. Suppose there is a demand for money to move the 
crops. If it costs more to issue currency will you not charge your 
customers more for the use of the money? 

Mr. Butler. That is governed entirely by the money market. It is 
like the case of a farmer. If he has 1,000 bushels of potatoes and has 
to sell them, and they are only worth 25 cents a bushel, he must sell 
them. 

Mr. Warner. But in that case will the farmer raise potatoes? 

Mr. Butler. Not next year. 

Mr. Warner. Will you, as a banker, issue currency unless it pays 
you a profit? 

Mr. Butler. Of course not. 

Mr. Warner. Will you not charge that rate of interest which will 
make it pay you a profit ? 

Mr. Butler. I will if I can get it. 

Mr. Warner. Will you not, as a condition of issuing more currency, 
exact enough interest to pay you a profit? 

Mr. Butler. Under any of these systems the banks will have some 
additional loaning facilities, and in my judgment that will have some 
tendency to make a lower rate of interest. 

Mr. Warner. The more facilities the banks will have the lower the 
rate of interest will be? 

Mr. Butler. I >f course; 1 think it will have that general tendency 

Mr. Warner. In regard to branch banks, have you given that sub- 
ject any consideration? 

Mr. Butler. I would not be a good authority on that subject, 
though I presume I am familiar enough with it to answer your questions 

Mr. Warner. Do you think that the question of branch banking — 
that of permitting banking to be done by a single institution in a large 
number of localities — is one which is or may be of very great impor 
tance in settling any system that may be proposed? 

Mr. Butler. I do not see any objection whatever in having branch 
banks ; but it is rather non- American in its idea. 

Mr. Warner. How does it work where it is practiced? 

Mr. Butler. No better, I think, than where they do not have it. 

Mr. Warner. Your opinion, then, would be rather against the advis- 
ability of branch banks? 

Mr. Butler. Yes; it is extending a man's care over a larger field 
than he can well attend to. 



144 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Warner. We liad branch banks in this country before the war 

Mr. Butler. Yes; and they have them now in Canada, and Scotland, 
and France, and Germany, and they seem to work well; but after all, 
with the dash and the rush of American people, I do not think I would 
like to have branch banks. 

Mr. Sperry. What would be the effect on Secretary Carlisle's plan 
if the requirement of a 30 per cent reserve were eliminated? 

Mr. Butler. He puts that in there to take the place of where I 
have a 25 per cent specie reserve. He calls it a guarantee, but I should 
call it a reserve, only he is in favor of reserving greenbacks, not 
specie. 

Mr. Sperry. His plan would tend, of course, to get so much green- 
backs out of the field? 

Mr. Butler. Yes ; that is why I said that there was a little political 
idea in it. 

Mr. Sperry. Under the Suffolk banking system did the banks pay 
out their own notes exclusively or did they pay out the notes of other 
banks? 

Mr. Butler. Their own notes almost exclusively. We always had 
an abundance of our own notes on hand. There was hardly a time 
when our institution did not have thirty or forty thousand dollars of 
its own notes in its vaults. 

Mr. Sperry. Do you think that under the Baltimore plan banks 
would pay out their own notes exclusively? 

Mr. Butler. There is no doubt about that. 

Mr. Sperry. So that the effect would be that each bank would circu- 
late its own notes ? 

Mr. Butler. Yes. 

Mr. Sperry. And to that extent it would have a localizing effect? 

Mr. Butler. Decidedly. 

Mr. Warner. And you would depend upon that for elasticity? 

Mr. Butler. Yes. 

Mr. Sperry. You prefer a note redeemable in coin, I take it? 

Mr. Butler. Yes, I do. 

Mr. Sperry. If you have a note redeemable in coin immediately on 
demand, do you think there is any danger of expansion or inflation of 
the currency where every bank is obliged to take up its own notes? 

Mr. Butler. There would be a little danger. Eicardo said a good 
many years ago that if it were possible not one dollar of gold from 
Australia or California would have got into the market. The banks 
would only take out just that amount of bank notes which they could 
keep in circulation, but that would come far short of what the law 
would allow them to take out. 1 doubt whether the banks would 
average more than 30 or 20 per cent of the circulation which the 
law woul! allow them. 

Mr. Sperry. Would the inflation be such as to approach the danger 
point? 

Mr. Butler. With this specie reserve it would not be, and that is 
why I prefer the specie reserve to the legal-tender note reserve. I would 
have a large reserve anyhow. Canada, I think, is very lax in all its 
reserv elegislation. The German law requires a reserve of 33J per cent 
for the Imperial bank and for all other banks that issue notes. Any 
circulation in excess of about ninety-four millions must be either fully 
covered by coin or must have a tax of 5 per cent paid upon it. There 
is no doubt but that Germany intended to form a currency system after 
England. The features of the two systems are very much the same. 



NATIONAL CURRENCY AND BANKING SYSTEM. 145 

I found some time ago that tlie paper money circulation of Germany was 
was twice what the law allowed under what they call " uncovered." 
There was twice that amount of money in circulation. 

Mr. Sperry. If the banks under either of these proposed systems 
would put out their own bills only, do you think that the tendency 
would be to retire greenbacks from circulation? 

Mr. Butler. Of course if greenbacks were paid in to us the only 
way for us to do would be to send them on. We would not pay out 
other bank notes. 

Mr. Ellis. I presume that you have examined the bill submitted by 
the Secretary of the Treasury"? 

Mr. Butler. Yes. 

Mr. Ellis. I would like to have your opinion, as a practical banker, 
with reference to section 5, which provides that the banks organizing 
under the plan proposed should be responsible ultimately and immedi- 
ately for the notes of any bank in the system which might fail. 

Mr. Butler. 1 would not make that a sweeping obligation. I do not 
like that feature at all. 

Mr. Ellis. I would like to have your opinion, as a banker, as to 
whether or not the present national banks would accept this system 
and organize under it. 

Mr. Butler. I do not believe they would organize under that pro- 
vision. It is a responsibility which baukers shrink from. 

Mr. Ellis. This provision would make your bank in Connecticut 
responsible for the conduct of a bank out in the State of Washington"? 

Mr. Butler. I think the banks would not come in under it. I think 
they would rather do without the notes. I think that provision of the 
law would practically nullify the act. 

Mr. Ellis. State what modification of the Carlisle plan would make 
it acceptable to the bankers of the country. 

Mr. Butler. That central redemption in New York, with branches, 
and the elimination of that feature which you spoke of would, I think, 
make it a pretty fair banking act. I should rather have the Baltimore 
plan with the central redemption than the other. 

Mr. Ellis. Would you eliminate the State-bank system altogether 
from any plan? 

Mr. Butler. That is not a thing which I would insist on against 
any great pressure, but I do think its elimination is very desirable. 

Mr. Ellis. W T ould the notes which might be issued under the plan 
which you propose (which does not provide that the Government should 
ultimately guarantee their redemption) be as satisfactory to the public 
as the present national banking system? 

Mr. Butler. Of course the Government guarantee carries a great 
deal of weight with the public, but I believe that when a system is in 
operation and the strength of it is seen the people would forget that 
there was any such thing as Government, so far as bank notes were 
concerned. 

Mr. Ellis. If those banks were organized and the Government had 
no responsibility either for the immediate or the ultimate redemption 
of the notes, and if a large number of large banks in the country 
should fail, would not that be calculated to produce a panic, and would 
not the holders throughout the country want to redeem their notes at 
once? 

Mr Butler. No; I think not. The thing which causes almost all 
panics and all runs on banks is not so much the solvency or insolvency 
of a bank as it is the fear of the people that they will not be able to 
NAT cur 10 



146 NATIONAL CURRENCY AND BANKING SYSTEM. 

get their money when they want it. That is the largest element in all 
panics. 

Mr. Ellis. What is your objectiou to using United States Treasury 
notes as a reserve fund? 

Mr. Butler. That is a mere sentiment. Gold is awfully pretty. 

Mr. Walker. Have you read the testimony of Mr. Carlisle? 

Mr. Butler. Yes, in part; hut I do not know how much of it has 
stuck to my memory. 

Mr. Walker. Mr. Carlisle testified that the 30 per cent to be 
deposited was to be a fixed sum beyond the control of the banks, 
except as they withdrew their notes. Now, the reserve fund, as we 
understand it in banking, is a reserve that may be used- by the bank 
at any moment and for any purpose. He having said that this is a 
note reserve fund, by what authority do you say that it is equivalent 
to what we understand as a bank reserve? 

Mr. Butler. I have no authority for it; it is only a supposition. 

Mr. Walker. Mr. Carlisle says it is a note reserve fund to make the 
notes secure, and, furthermore, it is deposited with the Government 
entirely. Now, is not that thoroughly inconsistent, and is it not even 
impossible of supposition that it is a bank-reserve fund as you and I 
understand a bank reserve? 

Mr. Butler. Certainly, if it could not be used. 

Mr. Walker. It could not be used by the bank. 

Mr. Butler. If it could not be used by the Comptroller of the Cur- 
rency for redemption or notes we might just as well not have it. 

Mr. Walker. It can not be. 

Mr. Butler. Then we might just as well not have it. 

The Chairman. I think that the Secretary of the Treasury distinctly 
stated, as part of the plan, that the law should not require a fund for the 
redemption of deposits. 

Mr. Walker. He distinctly stated that his bill did not require any 
deposit reserve at all to be carried, and that this was left entirely to 
the good judgment of the banks. His 30 per cent fund is entirely 
eliminated from the reserve which the bank carries. 

Mr. Butler. When I read his testimony I noticed that, but it went 
out of my mind. 

Mr. Cobb, of Alabama. You stated that you objected very strenu- 
ously to making all the banks responsible for a failed bank. Suppose 
that responsibility were limited to 1 per cent, would it be a very serious 
objection? 

Mr. Butler. I have got it in my plan at 2 per cent. 

Mr. Walker. The idea is that no bank or individual is ever willing 
to assume an unknown liability? 

Mr. Butler. That is it. 

Mr. Walker. If there is a known liability — 

Mr. Butler. There would not be so much objection to it. 

Mr. Hall. In reply to a question by Mr. Johnson, of Indiana, you 
interjected the remark that the Secretary of the Treasury had injected 
a political element into his plan. You referred to the requirement of 
the deposit of 30 per cent in legal-tender notes as a guarantee fund. 
That was the political element you referred to. Now I ask you if, under 
the provisions of your plan, you have any method of retiring legal-ten- 
der notes? 

Mr. Butler. Yes; I make the provision that for every $100,000 of 
bank notes put into circulation the Secretary of the Treasury is to 
retire $75,000 of legal-tender notes and issue bonds. 



NATIONAL CURRENCY AND BANKING SYSTEM. 147 

Mr. Hall. Is there any such provision in the Baltimore plan? 

Mr. Butler. I have forgotten. 

Mr. Horace White. There is nothing in the Baltimore plan on that 
subject. I introduced it in my plan which I submitted yesterday. 

Mr. Hall (to Mr. Butler). Do you not regard the present financial 
condition by which these legal tender Treasury notes are used for the 
purpose of exhausting the gold reserve as a dangerous and critical 
condition? 

Mr. Butler. I do not see how any man can have two opinions on 
that subject. 

Mr. Hall. You think that it is a dangerous and critical condition? 

Mr. Butler. Yes; I do. 

Mr. Hall. But this so-called political element which you spoke of in 
Secretary Carlisle's plan is simply an element which tends to relieve a 
very embarrassed condition ? 

Mr. Butler. Yes; to some extent. When I used the word "politi- 
cal" I did not mean it as a matter of party politics, but as a general 
term. 

Mr. Hall. In answer to a question of Mr. Ellis's, referring to the fifth 
section of Secretary Carlisle's plan, you said that no banks would come 
in under its operation so long as the fifth section remained in that plan. 

Mr. Butler. With unlimited responsibility for other people's actions, 
I suppose they would not. I do not believe that any bank would aecei/t 
unknown liabilities. 

Mr. Hall. Did you ever read section 5 of Mr. Carlisle's bill? 

Mr. Butler. I have read it, but I do not recollect exactly now how it 
is worded. I have been quite ill, and I am quite weak yet. 

Mr. Hall. Section 5 reads : 

Sec. 5. That in r*rder to provide a safety fund for the prompt redemption of the 
circulating notes of failed national banking associations, each such association now 
orgauized, or hereafter organized, shall pay to the Treasurer of the United States, in 
the months of .January and July in each year, a tax of one-fourth of one per centum 
for each half year upon the average amount of its circulating notes outstanding, to 
be computed as hereinbefore provided, until the said fund amounts to a sum equal 
to live per centum upon the total amount of national-bank notes outstanding, and 
thereafter said tax shall cease. Each association hereafter organized, and each 
association applying for additional circulation, shall pay its pro rata share into the 
said fund before receiving notes; but an association retiring or reducing its circula- 
tion shall not be entitled to withdraw any part of said fund. When a national banking 
association becomes insolvent its guaranty fund held on deposit shall be transferred 
to the safety fund herein provided for, and applied to the redemption of its out- 
standing notes; and in case the said last-mentioned fund should at any time be 
impaired by the redemption of the notes of failed banks, and the immediately avail- 
able assets of said banks are not sufficient to reimburse it, said fund shall be at once 
restored by pro rata assessments upon all the other associations according to the 
amount of their outstanding circulation, and the associations so assessed shall have 
a first lien upon the assets of each failed bank for the amount properly chargeable 
to such bank on account of the redemption of its circulation. 

Now, the liability is to this 5 per cent safety fund. The banks are 
to keep that up, and when a bank fails the 30 per cent guarantee 
deposited by that failed bank is transferred at once to the o per cent 
safety fund, and the banks that keep up this 5 per cent have an immed- 
iate lien on the assets of the defunct bank. Do you think that an 
increased hazard? 

Mr. Butler. I would not consider it any risk to the bank at all, but 
yet I do not think that the average board of directors of a bank would 
vote for it. 

Mr. Hall. In view of your mind being refreshed as to the provisions 
of section 5 of Mr. Carlisle's bill, would yon then say that, if it was a 



148 NATIONAL CURRENCY AND BANKING SYSTEM. 

law, the national banks or the hanks in the United States would not 
take out circulation or come under the conditions of the law simply on 
account of the provisions of section 5? 

Mr. Butler. I think it very problematical — very. 

Mr. Hall. I should like to know what your statement is based on* 

Mr. Butler. No reasonable man likes to bind himself to an abso- 
lutely unknown responsibility. 

Mr. Hall. Is there an unknown responsibility in the provisions of 
that section ? 

Mr. Butler. Yes; the banks do not know just what it is. It is not 
a definite responsibility. But I do not believe there is any risk in it. 
I may be entirely wrong. It is a mere matter of opinion, and I may be 
wrong in that while I may be right in everything else. 

Mr. Cox. In your opinion as a banker, if the guarantee fund is made 
up of the 5 per cent safety fund and the 30 per cent deposit of the failed 
bank added to it, do you think there is any danger of the banks having 
to pay anything in the case of a failed bank? 

Mr. Butler. Not a bit. 

Mr. Cox. So the unknown liability lies in a myth at last? 

Mr. Butler. Yes, it does. 

Mr. Ellis. With reference to the matter you were just talking about 
in answer to questions propounded by Mr. Hall the Secretary of the 
Treasury has testified, and has explained the difference between his 
bill and the Baltimore plan. I wish to read you the interpretation 
which he puts on section 5. He says on page 15 of the testimony: 

The plan which I have proposed requires, in the first place, the deposit of a sum 
equal to 30 per cent of the amount of circulating notes applied for by the bank, this 
money to be held all the time and to constitute a separate fund belonging to the 
bank which makes the deposit. In addition to that, there is to be a safety fund 
raised by taxation on all the banks in the same way as is proposed in the Baltimore 
plan, out of which the notes of failed banks shall be redeemed. And if that fund 
shall prove insufficient (or if it be reduced below 5 per cent of the total amount of 
national-bank circulation), and if the immediate available assets of the failed bank 
are not sufficient to redeem its notes, the Treasury Department is to assess all ihe 
other national banks pro rata, according to the amount of their circulation, to bring 
this fund up. And the banks that pay this assessment are to have a first lien on all 
the assets of the failed national bank, and the Government is not to be in any way 
responsible. 

With that interpretation of this section by the author of it, and with 
that fact known to national bankers and directors, I repeat my ques- 
tion: Would they organize under it? 

Mr. Butler. I think it would interfere very greatly with our organ- 
izing under it. If I were personally. committing my own money I would 
have no fear of a loss, and yet I would not commit our institution to it, 
because I am handling other people's property. 

Mr. Johnson, of Indiana. In your opinion what would be the effect 
on the national banks issuing circulating notes under the enactment 
by Congress of a national-banking law which would impose pretty rigid 
conditions on them and which at the same time would permit banking 
by State banks under very lax conditions? 

Mr. Butler. That ought not to be done. 

Mr. Johnson, of Indiana. What would be the effect on national banks 
of such a discrimination? 

Mr. Butler. I do not know that it would have any effect on the 
national banks at all, because every bank stands alone and every com- 
munity stands alone. 

Mr. Johnson, of Indiana. Would it not have a tendency to induce 
banks to incorporate under State laws ? 



NATIONAL CURRENCY AND BANKING SYSTEM. 149 

Mr. Butler. I do not know. The word " national " is considered 
as being of as much advantage as that would be a disadvantage. 

Mr. Johnson, of Indiana. But if a national banking law imposed 
rigid conditions would the effect not probably be that the national 
banks would incorporate under State laws? 

Mr. Butler. I think they would. 

Mr. Johnson, of Indiana. As banks of issue? 

Mr. Butler. I think they would. 

Mr. Johnson, of Indiana. If permitted by a national banking law? 

Mr. Butler. I think they would. 

Mr. Johnson, of Indiana. As I take it, you feel that there is no dan- 
ger of loss to whosoever assumes the ultimate liability of these circulat- 
ing notes under this safety fund system? . 

Mr. Butler. I do not believe that there is a possibility of loss. 

Mr. Johnson, of Indiana. Therefore, whether it fall upon the banks 
or upon the Government will really not make much difference so far as 
actual loss is concerned, will it? 

Mr. Butler. !No. 

Mr. Johnson, of Indiana. Is it not very important for the success of 
a bank currency that the people shall have faith iu its soundness? 

Mr. Butler. Yes; there is no question about that. 

Mr. Johnson, of Indiana. Do you not think that they would be much 
more liable to have more faith in it if they felt that the Government 
was ultimately liable for the payment of the notes than if the ultimate 
liability rested elsewhere? 

Mr. Butler. Yes; I think that that would add to the confidence, 
undoubtedly. 

Mr. Johnson, of Indiana. Then would you not favor ultimate Gov- 
ernment liability to the note holder under the safety-fund system? 

Mr. Butler. I do not think it necessary at all; and I am so consti- 
tutionally opposed to the Government having anything to do with the 
banking business that my own tendency is to cut clear of the Govern- 
ment. 

Mr. Johnson, of Indiana. Laying aside the constitutional scruples 
and looking at it as a practical business man, do you not think that 
the people would have more confidence in any system of circulating 
notes that carried with it its ultimate redemption by the General Gov- 
ernment? 

Mr. Butler. There can not be any question at all about that. 

Mr. Walker. When you speak of the confidence of the people, is 
not the confidence of the people, so far as currency is concerned, a 
synonym with the confidence of bankers? 

Mr. Butler. It comes practically to that, to a large extent. 

Mr. Walker. When you say that there is no risk under this 5 per 
cent guarantee, I suppose you mean by that that there is no risk after 
all the banks of the country have gone into the system. You do not 
mean to say that there would be no risk if there were only ten banks 
in it? 

Mr. Butler. At the first start there would be, perhaps, an element 
of risk. 

Mr. Walker. There would be a serious risk if there were only ten 
banks in it? 

Mr. Butler. The risk would not be worth considering. 

Mr. Walker. Would it not be worth considering for the first year, 
supposing there were only ten banks in it with a capital of $100,000 
each? 



150 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Butler. I think not. 

Mr. Russell. If your opinion as a banker is correct, that the national 
banks generally would fail to organize under Secretary Carlisle's plan, 
with the contingent liability of section five in it, then the practical 
result of the Secretary's plan would be to give this country a State-bank 
currency, would it not? 

Mr. Butler. I think you are right about that, but I had not thought 
about it. 

Mr. Warner. You spoke of every bank standing on it s own bottom 
and on its own credit in the confidence of the community in which it 
does business. During the last panic, for example, your depositors 
did not institute a run upon you, as a consequence of knowing that 
banks were breaking in Wisconsin, Colorado, and other States. Incase 
however, that they had knowledge that your bank was responsible 
with others, for the circulation of banks which (they heard) were 
breaking on every side, would that not have produced a very grave 
feeling of apprehension among the people? 

Mr. Butler. That panic was not a note panic at all. It was a 
depositors' panic. 

Mr. Warner. I was referring to the effect of this clause of section 5. 
At present your bank is not responsible for the currency of any other 
bank. 

Mr. Butler. No. 

Mr. Warner. Nor for its business? 

Mr. Butler. No. 

Mr. Warner. So,- when your depositors hear of banks breaking in 
Washington, Colorado, and other States, that fact does not, of itself, 
cause them to worry about the soundness of your bank? 

Mr. Butler. No. 

Mr. Warner. In case, however, a plan involving section 5 went into 
effect, and the depositors in your bank knew that your bank was 
responsible as an ultimate guarantor, for the circulation of the numer- 
ous banks throughout the country, which, the newspapers told them 7 
were breaking; would not that cause them to have some apprehension 
as to your bank? 

Mr. Butler. They would not have the same confidence. 

Mr. Warner. And would not that tend to bring about a run on your 
bank? 

Mr. Butler. Undoubtedly. 

Mr. Warner. And is not that a serious objection to the unlimited 
responsibility provided for in section 10? 

Mr. Butler. Very serious. 

The committee here took a recess till 2 p. in. 

AFTER RECESS. 

The chairman stated to the committee that he had received a telegram 
from Mr. Cornwell, dated Buffalo, N. Y., December 11, and announcing 
that he would be in this city at noon to-day, but that he had not yet 
appeared. 

Mr. Ellis. Mr. Chairman, I should like to interrogate Mr. Butler 
again. 

ADDITIONAL STATEMENT OE MR. GEORGE A. BUTLER. 

Mr. Ellis. In your statement before recess you stated that prices of 
farm products, such as cotton and wheat, had been constantly declining 



NATIONAL CURRENCY AND BANKING SYSTEM. 151 

for a number of years. I do not think I understood the reason which 
you gave for that decline and should be glad to have you state it now. 

Mr. Butler. I intended to state that the building of railways by 
Eussia in western Asia and the opening up of a large wheat and cotton 
region in Asia, and also the fact that the attention of Egypt had been 
given to cotton and wheat, together \\ ith the large supplies from the 
Argentine Republic, had created a competition that the United States 
had never heretofore had for our wheat and cotton. That is the state- 
ment I meant to make. 

Mr. Ellis. Is it your opinion, then, that the cause, or one of the 
causes, of this reduction in prices grows out of overproduction and 
increased competition? 

Mr. Butler. Largely, yes. I do not quite like the use of the word 
u overproduction:" it is rather unscientific from the political economist's 
point of view. I would rather say that the cause has been new and 
sharp competition. 

Mr. Ellis. Does the plan which you have suggested propose to deal 
with conditions like that? And what, in your judgment, would be 
the effect upon the agricultural interests of the country if your plan 
were adopted and enacted into law? 

Mr. Butler. Whether my plan or any similar plan should be 
adopted, it will simply place the banks and currency of the country in 
a natural condition, making the movement of currency natural and 
easy, and one that will adjust itself to any industrial conditions. That 
is all I claim for the plan. 

Mr. Ellis. Your plan, then, would not, if I, understand, either 
necessarily or probably result in a revival of the agricultural interests 
of the country? 

Mr. Butler. It would not necessarily affect the prices in any way. 
Banking of itself does not operate in that way. But what I would say 
is this, that the better the banking and the better the currency, the 
better will all the agricultural and other interests of the country be. 

Mr. Walker. Is it not a fact that the cheaper the exchange and 
the less number of middlemen you have between consumer and £>ro- 
ducer, the better will be the prices to the producer? 

Mr. Butler. Unquestionably. 

Mr. Cobb, of Missouri. But that will not increase the demand for 
breadstuff's. 

Mr. Butler. That will depend on the number of mouths in the 
world. 

Mr. Cobb, of Missouri. If we raise more than we can ourselves con- 
sume, that necessarily is overproduction? 

Mr. Butler. That is a question that a banker can not deal with 5 
that is a local question. 

Mr. Black. W T hat are your rates of interest? 

Mr. Butler. With us varying from to 6 per cent; but with us we 
never charge over 6 per cent in a panic, no matter how severe the 
panic. 

Mr. Black. I mean under normal conditions. 

Mr. Butler. Call it 6 per cent. 

Mr. Black. Can you suggest any remedy for this condition of things : 
Take my city, for instance, where there is a bank whose stock is worth 
$150 a share; 1 can not go into that bank with its own stock, or with 
any other security, even United States bonds, and get money for a less 
rate than 8 per cent. 

Mr. Butler. What city are you from? 



152 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Black. Augusta, Ga. 

Mr. Butler. The rates are higher in the South and West than 
with us. 

Mr. Black. Can you suggest any remedy for that, if there is any! 

Mr. Butler. Either of these plans before you will enable the bank 
in your city to extend its loans, and therefore give larger facilities, 
because just in proportion that they can keep their notes in circulation 
do they add to their loaning capacity. 

Mr. Black. But that bank has no notes. 

Mr. Butler. I mean under one of the new systems proposed. 

Mr. Black. They have to send to £Tew York to get money. You 
bankers of the East lend money to them at 6 per cent; of course it costs 
something to get the money there, and costs something to handle it 
after it gets there, so that the result is that the farmer has to pay 
anywhere from 8 to 10 per cent for the use of it when he gets it. 

Mr. Butler. I think no section of the country will be more greatly 
benefited by the adoption of any one of these plans than the South. 

Mr. Black. When you say "anyone" do you include the plan of the 
Secretary of the Treasury ? 

Mr. Butler. Yes; because that provides for an increase of the note 
issue. If that plan be adopted and the people organize under it they 
will get the benefit. It depends on that, of course. 

Mr. Cobb, of Missouri. You said this morning that you thought they 
would not organize. 

Mr. Butler. I said if they did; I did not think of that. 

Mr. Walker. Will you please say what bills are before the commit- 
tee? Is there any before the committee except the Carlisle plan and 
the Baltimore plan? 

Mr. Butler. I should eliminate the Carlisle bill, because that one 
particular feature slips my mind all the time. I will say that if either 
the Baltimore plan or mine were adopted — I will limit it to those two — 
it would help the South more than any plan I know of. 

Mr. Black. Explain how. 

Mr. Butler. Because under the national-bank act a bank of, say, 
$100,000 capital pays out $114,000 to get $100,000 of bonds; it then 
takes out $90,000 circulation, and has to keep a 5 per cent reserve 
against that, which brings it down to $85,000, so the national bank- 
ing system has taken $29,000 out of the capacity of that bank to lend 
money to you. Wipe out the national system entirely and put it under 
the State without any circulation at all, and it adds $29,000 to its loan- 
able capital. If you take the Baltimore plan or mine you will see that 
it keeps out $50,000 of circulating notes. That $50,000 adds so much 
to the loanable force of the bank. 

Mr. Black. In your opinion it would help by increasing the circu- 
lation of national banks? 

Mr. Butler. It would also increase the loanable ability of the 
banks. 

Mr. Walker. You mean the local national banks? 

Mr. Butler. Yes, sir. 

Mr. Black. I should like to ask you one more question. It does not 
seem to come within the scope of the scheme suggested by the bankers, 
but it seems to me that there are two classes, if I may so speak, one 
looking after the banks and the other the Secretary of the Treasury, 
who is largely looking to the Treasury Department. It does not come 
within the scope of your scheme, but you are a gentleman of large 
experience and have given much thought to this subject. What do 



NATIONAL CURRENCY AND BANKING SYSTEM. 153 

you say to the suggestion, so often made, that the Treasury may be 
relieved of requiring customs to be paid in gold? 

Mr. Butler. I do not know. That question does not begin and end 
there. I do not know but that would send gold to a premium in the 
present condition of things. I think it would. 

Mr. Black. I will ask you even a broader question than that. I 
should like to get your opinion as to the effect of the Government 
establishing the policy, as to redeeming this paper currency, of exer- 
cising its own option whether it would pay in silver or gold, rather 
than to let the holder decide that question for himself. 

Mr. Butler. I can not answer that any better than to say this: 
The very hour that I am convinced that the Government will do it I 
will sell every dollar's worth of personal property I have on earth and 
invest it in real estate. 

Mr. Ellis. Why? 

Mr. Butler. Because that brings the country to a silver basis and 
eliminates more than half the value of personal property in the form of 
stocks, bonds, mortgages, and everything of that sort. 

Mr. Hall. Would it not affect real estate in the same way as per- 
sonal property would be affected ? 

Mr. Butler. No ; because in the case of real estate you can put up the 
rents in proportion. Before the last election I was intending to do 
this, and, indeed, commenced, but then the election occurred, which 
was not so favorable to the silver men, and I thought better of it and 
stopped. 

Mr. Black. It appears to me that you gentlemen who represent the 
banks all seem very much in favor of a continual issue of United States 
bonds, and I have heard the expression used two or three times about 
the u manly way of doing this thing." 

Mr. Butler. You have not heard any such expression from me. 

Mr. Black. I do not recall that I have heard it from you, but I cer- 
tainly have heard other gentlemen here who have used that very 
expression. They say the Government ought to be honest and manly, 
as an individual should be, and that the manly way for the Govern- 
ment to do would be to issue bonds and redeem these notes in gold. 

Mr. Butler. If my remarks this morning were not absolutely free 
from everything that might sound like an imputation or criticism or 
reflection, then I was not able to keep control of my remarks, because 
I never allow myself to deal in any such language when speaking or 
writing on any public question. 

Mr. Black. I was not criticising you at all; I did not mean to do 
that. 

Mr. Butler. I understand. Let me say that I am not here in the 
interest of the banks at all. My little institution can live, and so can I, 
without Government notes, without Government bonds, or without any 
action whatever by Congress, and live very handsomely. But I amhere 
purely in the interest of a sound currency. I have no other object in 
appearing before this committee. 

The Chairman. The Chair desires to state that Mr. Butler's appear- 
ance before the committee was not at all in any way in consequence of 
any request emanating from him. 

Mr. Black. I do not think it is necessary for the Chair to make that 
statement. 

The Chairman. The Chair states that in justice to Mr. Butler 
himself. 

Mr. Black. I do not understand that any of these gentlemen have 



154 NATIONAL CURRENCY AND BANKING SYSTEM. 

appeared before the committee by tlieir own invitation, but by the 
request of the committee. 

The Chairman. That is right. 

Mr. Butler. I do not understand that anything is imputed to me ? 
but I should like to say that I am not used to speaking as I did this 
morning. I do not speak in this way once in three years, nor have I 
during my life, so that this has been an unusual experience for me. 

Mr. H AUG en. It is sometimes said that it is in the interest of the 
banks to contract the currency. I have heard that assertion in discus- 
sions on the floor of the House. What have you to say about that? 

Mr. Butler. Simply that those who made the assertion did not 
understand the question. There is nothing further from the interest 
of the banks than to do anything of the kind. Such a course would 
be absolutely inimical to the banks, from every point of view. Such a 
thing has never been done in the history of the country. 

Mr. Walker. That is it exactly. 

Mr. Haugen. The bank makes its principal profit out of deposits, 
and when money is plentiful the bank has more deposits and therefore 
more profit than when money is scarce, of course. 

Mr. Butler. We have $50,000 of circulation under the national-bank 
act; it is not worth one stiver to us. If you do not pass a banking law r 
but will pass a law allowing me to retain the word "national" in the 
title of the bank, without requiring me to keep any bonds, the very first 
thing after that that we would do would be to sell all our bonds and 
surrender our circulation. 

Mr. Ellis. That would happen in every community where the inter- 
est is low, would it not? 

Mr. Butler. Yes, sir. 

Mr. Hall. Let me ask you one question, suggested by what has been 
drawn out by my friend from Kentucky (Mr. Ellis). 

Mr. Walker. I think Mr. Butler misunderstood at one point. I 
understood him to say that it would help the banks when interest was 
low and still more when it was high. 

Mr. Ellis. No. I asked him if they would not want to sell their 
bonds in every community where the interest was low, and to that he 
answered yes. 

Mr. Walker. It Avouldbeto the interest of a community, also, where 
the rate of interest was high. 

Mr. Butler. Yes; the higher the interest the more inducement I 
have to get circulation. 

Mr. Hall. With reference to the interest of the agricultural classes 
in matters of this kind, I want to know if, under the operation of what 
is generally known in the literature of political economy as the Gresham 
law — that poor money will always drive out good money — the agricul- 
tural and laboring classes of the United States, or of any government, 
are not more deeply and vitally interested in a safe and sound currency 
than any other class of people*? 

Mr. Butler, There is no question about it. 

Mr. Hall. Can not the bankers and business men look after the 
question of getting good currency for themselves, and are not the labor- 
ing classes the ones who are liable to have the bad money left on their 
hands'? 

Mr. Butler. Bankers, capitalists, and speculators can always take 
care of themselves. It does not make any difference what the laws 
are, we can always take care of ourselves. It requires men of ability 
to occupy those places, if I do say so. 



NATIONAL CURRENCY AND BANKING SYSTEM. 155 

Mr. Johnson, of Ohio. Mr. Hall, 'of Missouri, has called your atten- 
tiou to the Gresham law. Suppose there are two kinds of currency in 
the country — national bank currency, which is receivable, at least in 
part, for public dues, and a State currency that has not the guarantee 
of anything except of the banks of issue, and is not receivable for any 
part of Government dues — would the Gresham law operate to drive 
out the good money? 

Mr. Butler. That is a very well enunciated doctrine; there is no 
doubt about that; but it is sometimes misunderstood. In the case you 
suggest, with the two kinds of paper money in circulation, it would 
not drive out the good money, because of economic conditions. To 
drive out the good money there must be economic conditions affecting 
exchanges between two or more countries. There must be a circula- 
tion between at least two countries in order to make that law operative. 

Mr. Johnson, of Ohio. Then, in your opinion, the Gresham law does 
not apply to the two kinds of paper described? 

Mr. Butler. Our paper money has no circulation in other countries, 
and, therefore, it does not apply. 

Mr. Johnson, of Ohio. Where paper money is not a legal tender for 
anything it is not, strictly speaking, money ? 

Mr. Butler. Ko. 

Mr. Johnson, of Ohio. Where the Gresham law operates is where 
you can force a man to take a certain kind of money in payment of a 
debt. Where you can not do that, then the Gresham law does not 
operate ? 

Mr. Butler. It does not operate under those conditions. 

Mr. Warner. Where there is freedom of choice and freedom of 
redemption the Greshain law does not operate 1 

Mr. Butler. The question arises with reference to the operation of 
the Gresham law where there is a difference in the different kinds of 
money used in two different countries. Where there is a metallic cur- 
rency, or any currency inferior to the best metallic currency, used in 
one country, there, in the course of time, the inferior currency will drive 
the best money out of circulation. 

Am I taking up too much time? It will take two or three minutes 
to answer that question. 

The Chairman. You are not taking up too much time at all. 

Mr. Butler. A great many wise people make a mistake by not tak- 
ing into consideration sufficient time to prove that law. For instance, 
iny friend, George S. Ooe, made an error in regard to the Bland bill; 
he thought it would produce immediate disaster. I told him he was 
wrong; that it would take fifteen or twenty years for the Bland bill to 
produce disaster under the Gresham law. Why? Simply because it 
would take from fifteen to twenty years to coin enough money under 
that law to practically fill the channels of circulation and crowd out 
gold. 

Mr. Warner. My question is slightly different. If there are two cur- 
rencies, such as my friend from Ohio (Mr. Johnson) has suggested,. 
afloat in the same community, neither being a legal tender, and every 
holder has the opportunity to force redemption of either, then, as I under- 
stand, the Gresham law will not work. 

Mr. Butler. People will keep the best money and send home the 
poorest. 

Mr. Warner. And the Gresham law will not operate? 

Mr. Butler. It is not operative in such case. 

Mr. Warner. Exactly. 



156 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Brosius. I desire to bHng into more distinctive view your 
thought upon the real nature of the difficulty of inelasticity in our pres- 
ent hauling currency. If I understand you, the chief difficulty is that, 
in order to have an elastic paper currency, the banks must be able to 
keep on hand at times a greater amount than is needed, in order to have 
it to use at other times when the need is greater. 

Mr. Butler. Yes, sir. 

Mr. Brosius. The portion of the currency which the bauks are 
required to hold idle must not cost them too much. Under the present 
system you say it costs tbe bank too much to hold any amount of idle 
notes for issue when the need increases. 

Mr. Butler. That is correct. 

Mr. Brosius. That is the idea, is it? 

Mr. Butler. Yes, sir. 

Mr. Brosius. Then in order to have the volume of currency suffi- 
ciently elastic the banks must get that currency gratuitously; they 
can not afford to pay anything for it. Is that the idea? 

Mr. Butler. They can not afford to pay very much for it. 

Mr. Brosius. When the banks issue the notes themselves, as 
proposed in your plan, that costs them nothing? 

Mr. Butler. No. 

Mr. Brosius. And when the notes are required to lie idle in the 
bank, that is no expenditure to the bank? 

Mr. Butler. That is correct. 

Mr. Brosius. But they have to spend a part of their capital for the 
bonds to secure their notes, and that costs them too much; is that the 
idea? 

Mr. Butler. That is correct. 

Mr. Brosius. Now, suppose the bonds of the Government were suf- 
ficiently abundant to be obtainable with ease, and that they paid a 
sufficient interest, so that the banks could afford to hold in their 
vaults at all times a sufficient amount of this currency to use when 
the need increased — you understand me? 

Mr. Butler. Yes, sir. 

Mr. Brosius (continuing). Without any loss to the bank; then the 
elasticity would not bt* diminished, because the currency would be 
based upon Government bonds as security. 

Mr. Butler. On the condition that the bonds carried the rate of 
interest that the bank must" make on its loans, and only on that 
condition. 

Mr. Brosius. Now what should you think of this proposition: Take 
the national banking system now in existence; refund the present 
bonded indebtedness with long time bonds at a certain rate of 
interest 

Mr. Hall. What rate? 

Mr. Brosius. We will say 2-J or 3 percent, whatever may be deter- 
mined upon; then use those bonds and also such similar bonds as may 
be issued to pay off the greenbacks if such shall be issued as a basis for 
our national banking currency for years to come, there being then enough 
of them to be easily obtainable, and yielding interest enough to make it 
somewhat profitable to the banks. Would not the national banking 
system, as it is now in vogue, under those conditions supply this coun- 
try with a sufficiently safe and adequately elastic currency for many 
years to come? 

Mr. Butler. It would not. 



NATIONAL CURRENCY AND BANKING SYSTEM. 157 

Mr. Brosius. Why not? 

Mr. Butler. Because the difference between 2£ and 5 per cent 
interest, we will say, is so great that the banks would not keep any 
more circulation than they could keep out at all times. 

Mr. Brosius. Then the reason is that it would be too expensive to 
the banks'? 

Mr. Butler. That is it. 

Mr. Hall. I think that we owe you a vote of thanks. 

Mr. Butler. If I have succeeded in giving the committee satisfac- 
tion it is a great pleasure to me. 

The Chairman. Are there any further questions to put to Mr. Butler ? 

The chair is informed that Mr. Cornwall is in the city, at his hotel, 
and will be here soon. 

Mr. Butler. I congratulate you, gentlemen, on that, for Mr. Corn- 
wall is a very bright man. 

ADDITIONAL STATEMENT OF MR. WHITE. 

The Chairman. A member of the committee desires to ask Mr. White 
to make a statement in regard to the Greshaui law, which has beeu 
referred to. 

Mr. White. My understanding about the Gresham law is this: At 
the time Gresham lived there was no paper money. Therefore Mr. 
Butler is right in saying that Mr. Gresham's idea applied only to 
metallic money. 

The question was propounded to Gresham by some public authority, 
Why is it that we have nothing but old, worn, and clipped silver money 
in circulation! (Silver was then the principal money in circulation in 
Great Britain.) Gresham replied truly that so long as a person was 
obliged to take a crown piece of short weight and could not help him- 
self, of course he would use that money to pay debts with, and that 
when he had a good piece in his .pocket he would sell it to somebody 
who would melt it and send it abroad. 

From that proposition of Mr. Gresham, which was perfectly true, the 
Gresham law came into the literature of x^olitical economy, although 
the principle was not entirely new to Mr. Gresham. It has been traced 
in earlier history. 

The Chairman. How far back in history is that? 

Mr. White. I think that the law applies equally to paper money, 
and that it is universally true, for I do remember that in Illinois there 
were, before the war, three or four different kinds of paper money in 
circulation, and that banks and individuals always used to pay out 
that which was a little the worst and keep what was the best. The 
New England bank notes, New York bank notes, and the notes of the 
State bank of Indiana, and of the State bank of Ohio, which were 
always at par and could always be used to make exchanges in New 
York at a very low discount, were kept by individuals and by banks 
for the purpose of making exchanges in New York and Boston, and 
they put out always the notes of Illinois, Wisconsin, and Georgia banks, 
which were at H per cent discount. There was a case where paper 
money was not a legal tender, and yet custom required people to take 
an inferior kind of money. 

I can give you another illustration: The Confederate notes during 
the war were not a legal tender, and the bank notes of the South were 
not legal tender; but the custom required people — public opinion 
required the people to take the Confederate notes, notwithstanding 



158 NATIONAL CURRENCY AND BANKING SYSTEM. 

they were not legal tender. The result was that the Confederate 
treasury notes crowded out the bank notes, which were a little better. 
People instinctively knew that bank notes were better than Confeder- 
ate notes, though neither was legal tender. The Gresham law operated 
there, and gave the whole field of circulation to the Confederate notes. 

Mr. Ellis. I should like to ask you if the Gresham law operated at 
all, in your opinion, during the existence of what is known as the 
Bland-Allison law. Did we feel the effects of the Gresham law then, 
or did it have any effect upon the currency of the country? 

Mr. White. I do not think it had, because all the different kinds of 
money were absolutely at par with each other. 

Mr. Ellis. Is it not a fact that during the existence of the Bland- 
Allison Act the accumulations of gold in this country increased several 
hundred million dollars, until the time that law was repealed, over and 
above what the amount of gold was when that law went into effect? 

Mr. White. There was a great importation of gold in the years 1880 
and 1881, amounting to about $140,000,000 or $1()0,000,000, due to trade 
conditions, I think, and to high prices of grain here and bad crops in 
Europe. After the year 1881, and for several years, I think the imports 
and exports of gold just about balanced each other. 

Mr. Johnson, of Indiana. Notwithstanding the Gresham law, two 
kinds of paper money may circulate side by side, the one being inferior 
to the other. 

Mr. Walker. He did not say that. 

Mr. White. I said this: That if public opinion required two kinds 
of money to be taken, the inferior money will circulate and the superior 
money will be put to other uses and be hoarded. 

Mr. Johnson, of Indiana. As I understand, you have given us an 
illustration occurring during the old State-bank times, where two kinds 
of money circulated, one being at a discount and the other not. In 
other words, the bad paper did not drive the other out, but those 
whose necessities required it were obliged to accept the inferior 
money. 

Mr. White. At the time the bad money drove the good money out 
under the Gresham law the field of circulation was taken by the infe- 
rior money, even though its inferiority was measured by only a very 
small fraction. 

Mr. Johnson, of Indiana. You think it is not a desirable condition 
to have two kinds of paper money in circulation, one being good and 
the other inferior ? 

Mr. White. Most undesirable. 

Mr. Johnson, of Indiana. And that this is one danger with the 
State bank system of issuing paper money? 

Mr. White. Yes, sir; in my opinion. 

Mr. Johnson, of Indiana. In fact, it is true of any system which has 
two or three different kinds of currency, whether paper or not 1 ? 

Mr. White. I remarked that there were three or four different kinds 
of money circulating in Illinois before the war, as the chairman of this 
committee remembers, and the bad money had the field of circulation. 

Mr. Johnson, of Indiana. Is it not a fallacy to say that bad money 
will not circulate'? 

Mr. White. Generally it is. I would not say that there may not be 
cases where bad money may not be driven out. The Suffolk bank, of 
Boston, managed, you know, to drive out inferior money. 

Mr. Johnson, of Indiana. But that system was limited in operation; 
it did not extend over a vast country with a population like ours. 



NATIONAL CURRENCY AND BANKING SYSTEM. 159 

Mr. White. No. 

Mr. Walker. No moiiey but New England money circulated in 
Massachusetts or New England. There was no circulation whatever in 
New England for the poor money. 

Mr. White. That is so, and they had a law prohibiting the banks 
from paying out any notes but their own. 

Mr. Cox. There is a great diversity of opinion about this matter. I 
want to put this proposition to you squarely. My friend from Indiana 
(Mr. Johnson) starts with the supposition that State bank money would 
be inferior money. 

Mr. Johnson, of Indiana. Oh, no; I did not start with that suppo- 
sition. 

Mr. Cox. Your argument was that way, anyhow. 

Mr. Johxson, of Indiana. I believe it to be true. 

Mr. Cox. We never had any State-bank money in our history that 
came in competition with national-bank paper money. 

Mr. White. No. 

Mr. Cox. Supp >se you organize a State bank in a State where there 
is a national bank already in operation, with, its circulating notes out. 
If the State-bank note is in the least degree in value below the national- 
bank note, would it not be absolutely impossible to pass the State-bank 
note over the counter? How could the bank get it out if it were not 
equivalent in value and not the representative of the same confidence 
by the people as in the case of the national-bank note? 

Mr. White. It would be a question between the banker and his 
customer. He would pass it over the counter, and then if the customer 
said he would not take it, he would not. 

Mr. Cox. Suppose the banker pays over the counter to you, say, 
$1,000. Then your object would be to pay it to me for $1,000". When 
you reach me and offer me the $1,000 of the State-bank money, I 
decline to take it. Your next step would be to cany it back to the 
bank, would it not? 

Mr. White. That is true. 

Mr. Cox. When you carried it back to the bank and asked the 
banker to give you credit for it on his books, and he declined to put it 
in that shape, but would only take it as a special deposit, then you 
would demand redemption, would you not? 

Mr. White. Yes; that is exactly the way I think it would work. 

Mr. Cox. If the State bank note is well secured, and the issue is pro- 
tected, so that it is as good as the note of the national bank and as well 
protected — assuming those facts — would it not be a great help in com- 
munities as a local currency in the transaction of business? 

Mr. White. Yes, sir. 

Mr. Cox. Assuming those facts to be true — because I do not want 
anything to do with it unless the assumption is good — then would it 
not operate in another direction, that is, become an active competitor 
with other bank notes, both national and State? 

Mr. White. Yes; all banks are competitors with each other. 

Mr. Cox. Assuming the facts as I have stated, and assuming those 
conclusions to be true, as you have answered me, tell me what real 
objection there can be to having a State bank. 

Mr. Hall. A sound one. 

Mr. Cox. Assume that. 

Mr. White. There is the objection that Mr. Butler mentioned this 
morning, that they introduced heterogeneousness in currency, which is 
a bad thing. 



160 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Cox. Pardon me a moment. Would it not be an additional 
benefit if that currency, Jike our friend Mr. Butler said about the local 
currency, Avould Lave a tendency to circulate nearer Lome, assuming- 
all tLe time that it is good? 

Mr. White. It would be desirable tLat it should circulate at Lome, 
but it is a question whether it would circulate at home. 

Mr. Cox. It would circulate if it were as good as the other. 

Mr. White. The question where it will circulate will depend very 
much upon its goodness. 

Mr. Cox. It would all depend on* that. 

Mr. White. And the credit it enjoys. It might circulate as far 
away from home as New York City, if it were perfectly good. 

Mr. Cox. Let me call your attention to one part of our country. I 
know what the general remark is about capital, that Ave need morecap- 
ital. I want to call your attention particularly to this fact in the con- 
dition of our State securities. Our railroad and municipal securities, 
as a rule, are all held away from home. Real estate is not a security 
in the national banks. Our bonds and stocks are away from home. 
The difficulty with us is in offering the security required by the national 
banking law. Now, assuming the same facts as before stated by me, 
that we make the security perfectly good, under proper limitations and 
restrictions, would not a system of that kind in the agricultural parts 
of the country, where they have no stocks or bonds of that character to 
use as collateral, be of great benefit? 

Mr. White. A great benefit to them ? 

Mr. Cox. Yes. 

Mr. Walker. To use real estate securities? 

Mr. White. I use such securties as I have. 

Mr. Cox. That makes it as good as the national-bank notes. Sup- 
pose you use real estate security ? 

Mr. White. Do you mean real estate notes? 

Mr. Cox. No. 

Mr. Warner. You mean short- time paper for current discount? 

Mr. Cox. Certainly; the point being all the time that we must make 
it, under proper limitations and restrictions, as good as its sister paper 
at the next door, which you call a national-bank bill. Now, I ask you 
the question, if we do that would not that be of great value to a part 
of the country that has been deprived by misfortune — I will not speak 
of that— of its stocks and its bonds and the ready security upon which 
you can get money in the East and North? 

Mr. White. Any community which has a perfectly sound bank is 
in better shape than it was before. That is a complete answer, I think. 
I say that any community which has a perfectly sound bank is in a 
better shape than it was before it had the bank. 

Mr. Cox. TLat is true. 

Mr. White. TLat is true wLetLer the bank has circulating notes 
or not. 

Mr. Cox. So it all comes back to the point that we make it abso- 
lutely good ? 

Mr. White. Yes. 

Mr. Cox. That is where it all hinges at last. 

Mr. White. So the community understands it is good and so it 
maintains a LigL credit. 

Now, I want to say one thing more which this question has called 
up: I think any bank which lends money on mortgage security will not 
last very long. 



NATIONAL CURRENCY AND BANKING SYSTEM. 161 

Mr. Cox. I agree with you on that. I do not desire to follow that 
up, but I think the question is pertinent. Take the State of Tennessee, 
my own State. Her bonds are above par. Our interest all goes away 
from us. Now, I want to get an inducement to bring them back. A 
Tennessee bond to-day does not bear quite so high a premium as a 
United States bond, but it is absolutely good. Now, if we want to bank 
upon the Tennessee bonds, with the whole State bound for their pay- 
ment — and other States are in the same condition — and with these 
restrictions, would it not be a great benefit to our citizens if our secur- 
ities could be brought back home where the interest on them would be 
paid at home'? 

Mr. White. You see I do not believe in banking on bond security 
at all, and so I am not prepared to reply to that question in the affirm- 
ative. 

Mr. Cox. I assume that that makes the issue good. I do not care 
whether it is commercial paper or bonds. But can there be any harm 
in permitting tlie State bank to issue its notes or promises to pay money 
if it be settled that they are absolutely good? 

Mr. White. Well, I answered before that the only objection is that 
of heterogeneousness. That is an objection that applies to the nation 
at large. 

Mr. Walker. Give a definition of good money. What is good 
money? You have been talking about good money. 

Mr. Johnson, of Indiana. I want to ask a question. 

The Chairman. The Chair will recognize the gentleman from Indiana 
in- a moment. 

Mr. White. I was about to say one thing more, led up to by Mr. 
Cox's question. I have been looking up the banking laws of some of 
the Southern States, as well as some of the Northern States, as those 
laws now exist, and I say that if either the Baltimore plan or the 
Secretary's plan should be adopted, to allow banks to issue on the 
safety-fund system, neither Virginia, North Carolina*, Georgia, New 
York, nor Massachusetts could ever issue any notes in competition, 
because it would cost too much. They all require bond security to-day. 
Even Massachusetts has abandoned her old Suffolk system. 

Mr. Cox. I did not intend, of course, to discuss the question of the 
different characters of securities, and I want to say to you that I am 
heartily in favor of the two systems. I think each one would be a ben- 
efit, and that both together would be of much more benefit to the 
people. 

The Chairman. Did I understand you to say that your knowledge 
of the laws with regard to banking, in force in the States you name, 
leads you to say that the system proposed by Mr. Carlisle, or that in 
the Baltimore plan, would be more favorable to a locality for the taking 
out of circulation than would be the stocks of that locality? 

Mr. White. No; I meant to say that if the Baltimore plan or any 
safety-fund system were adopted, discarding bond security, the national 
banks in those very States would occupy the field of circulation, to the 
exclusion of State-bank notes, because it would cost the State banks 
too much. 

The Chairman. And therefore they could do better to adopt the 
national system? 

Mr. White. Yes. 

Mr. Black. I want to call your attention, in this connection, to the 
fact that the legislature of Georgia is now in session, and there has 
been a bill introduced in that legislature authorizing the State to bank 

NAT CUR 11 



162 NATIONAL CURRENCY AND BANKING SYSTEM. 

under Mr. Carlisle's system. Do you not think that the States would 
change their laws where they do not now permit banking 1 ? 

Mr. White. They might do that. Some of the States have consti- 
tutional provisions against it. 

Mr. Johnson, of Indiana. What local need would this State-bank 
paper, which Mr. Cox has assumed in his questions to be sound, supply 
which could not be as well supplied by a sound national-bank note? 

Mr. White. Not any. 

Mr. Johnson, of Indiana. Is it not a fact that the German Govern- 
ment has, within a few years last past, taken away from the various 
States composing that nation the right to issue paper money, and sub- 
stituted therefor a national currency? 

Mr. White. That I do not know. I have not examined that subject 
sufficiently to answer. 

Mr. Walker. Have you in mind the amount of gold in the United 
States at the time that we resumed specie payments, or at the close of 
the period of premiums on gold? 

Mr. White. I have not, and I do not know anybody that has. That 
is wholly a matter of conjecture. 

Mr. Walker. It was about $300,000,000, I think. 

Mr. White. I do not know. I say it is purely a coujectural matter. 

Mr. Walker. I do not mean all gold. I should have said the 
visible gold. 

Mr. White. I think the Treasury had $100,000,000 of its own gold, 
and that there was about $50,000,000 of other gold in the Treasury, 
represented by gold certificates. I do not think there was very much 
other visible gold. 

Mr. Walker. Can you tell us what the visible gold is in England, 
the gold of commerce? I think it is all in the Bank of England. 

Mr. White. I think it is about £24,000,000. 

Mr. Walker; That is the average sum. Have you in your mind 
the statistics with reference to the gold held in India, China, and 
Mexico used in commerce? 

Mr. White. No, I have not; the importations of gold into India in 
the last fifteen years have been very large, but the figures I do not 
know anything about. 

Mr. Walker. The point I want to get at is this : That international 
commerce, without regard to national laws, makes it to the interest of 
those engaged in commerce, of whom the banks are part in all countries, 
to maintain the gold necessary for their business, irrespective of laws. 
Is not that true ? 

Mr. White. Oh, yes. 

Mr. Walker. Is it not true that the United States, England, India, 
China, Mexico, and in fact every country, has held about the same pro- 
portion of: all visible gold for the purposes of international commerce? 

Mr. White. Yes, that is my opinion. 

Mr. Bussell. I should like to ask Mr. White if, in his opinion, the 
provision of section 5 of the Secretary's bill is a serious obstacle to 
the organization of national banks for circulation. 

Mr. White. That is the provision which makes them all responsible? 

Mr. Bussell. Makes them responsible for contingent liability. 

Mr. White. I think it is an obstacle. As Mr. Butler said this morn-, 
ing, I think the board of directors would shy at it. 

Mr. Bussell. In your opinion, the provision remaining as it is now 
drafted in that bill would result in few national banks, if any, organiz- 
ing for circulation? 



NATIONAL CURRENCY AND BANKING SYSTEM. 163 

Mr. White. That is my opinion. 

Mr. Hall. You are speaking of section 5, Mr. Russell? 

Mr. Russell. Yes. 

Mr. Hall. I think Mr. White and Mr. Butler have unwittingly done 
injustice to Mr. Carlisle's plan. Have you carefully read that section, 
Mr. White? 

Mr. White. I heard you read it carefully this morning. I should 
like to hear it again. 

Mr. Hall. 1 will state the substance. 

It provides, in the first place, that each bank shall be required to 
deposit what the Secretary calls a guarantee fund of 30 per cent in 
greenbacks. Then a safety fund is created of 5 per cent by taxing all 
the banks. This safety fund is for the purpose of redeeming the notes 
of failed national banks. The minute a national bank fails, its guar- 
antee fund held on deposit shall be transferred to the safety fund. That 
in and of itself will go a long way toward redeeming these notes. Then 
the notes themselves are made a first lien upon all of the assets of the 
bank, besides which there is a double liability clause with reference to 
the stockholders, and 1 should think that ninetymine times out of a 
hundred that would certainly satisfy and pay all the notes of failed 
national banks. But in the event that it does not it is provided that 
there shall be an assessment upon all the national banks of the United 
States just for the purpose of bringing up this safety fund to its 5 per 
cent, out of which the notes of failed national banks are paid. Then 
give the national banks that contribute this a first lien upon all the 
assets, and a double liability clause against the stockholders, to reim- 
burse them for the money they have expended for the benefit of that 
bank. Do you mean to say that that little contingent liability would 
have a tendency that in and of itself would prevent men from taking 
out charters under this plan % 

Mr. White. I agree with Mr. Butler exactly on that. To my mind 
it would not weigh a feather, because I say that the notes would be 
absolutely secure; and yet I think the average board of directors would 
shy at it; that they would say " that is an indefinite sum." 

The Chairman. In that connection Mr. Carlisle, on page 15 of his 
report to Congress, states the total resources of the 3,755 national 
banks at $3,473,000,000, while the capital stock of all the national 
banks is only $672,000,000. If banks are restricted to the 75 per cent 
of their capital stock they will only be permitted to issue to the pres- 
ent number of banks on their capital stock $504,000,000 of currency. 
If every bank failed this is all they would be required to pay, and 
there would be a fund estimated at $3,473,000,000 with which to pay it. 
Are you of opinion, Mr. White, that the $3,473,000,000 would be ample 
security for $504,000,000, if all the banks were to fail? 

Mr. White. Yes, sir. 

Mr. Henderson. Is that the resources of all the banks? 

The Chairman. National banks only. 

Mr. Henderson. Do they assess this 5 per cent on all their resources % 

The Chairman. No; but all the resources are held liable to the bill 
holders for the payment of the circulating notes, and, in addition, there 
is a personal liability of the stockholders equal to the whole amount of 
the stock. I do not see here any estimate of that. 

Mr. Hall. It is 5 per cent of the circulation. 

Mr. Eussell. One question more, Mr. White. I understood you to 
say that, in your opinion, under the provisions of section 5 of the Sec- 
retary's bill, the directors of a national bank would shy at this propo- 



164 NATIONAL CURRENCY AND BANKING SYSTEM. 

sition. Do I understand that you think if a bank desires to become a 
bank of circulation it would much prefer to be a bank of circulation 
organized as a State bank, rather than as a national bank, with the pro- 
visions of that section 5 remaining as they are? 

Mr. White. Yes; I should think so. I should think that the bank 
would take that method of circulating notes, if the door were open 
involving- less liability. 

Mr. Brosius. Apropos of your suggestion a moment ago, about the 
difficulty in some States of organizing State banks under the Secre- 
tary's plan, the constitution of the State of Pennsylvania provides that 
no note shall be issued by any bank organized in the State until the 
bank has tiled with the auditor-general security equal to the amount 
of notes for their protection. Under such a constitutional provision 
the State could not organize any banks of issue under the Carlisle 
plan, could it? 

Mr. White. No; it could not. 

Mr. Brosius. Why not! 

Mr. White. It would cost too much. 

Mr. Brosius. Would it not make very expensive circulation? 

Mr. Warner. Not unless your securities were above par. 

Mr. Brosius. It would depend upon the amount of interest, of course; 
but under ordinary circumstances E want to know your opinion about it. 

Mr. White. I do not think, as I said, that they could organize any 
banks of issue under the Carlisle plan in that State. 

Mr. Brosius. In addition to investing its capital in these securities 
it would have to invest 30 per cent of its circulation, and then it would 
have 130 per cent of its circulation invested and tied up? 

Mr. White. Yes. 

Mr. Warner asked Mr. Homer a question last evening, which was very 
proper and rather a pregnant one, and that was, If the banks would 
hesitate to guarantee each other how could it be safe for the Govern- 
ment to guarantee all the banks? I think thrre are two or three 
answers to that question. One is that the Government can do it on 
account of its bigness. I should not want to insure Mr. Warner's life, 
nor would he want to insure mine, but a life insurance company would 
be very willing to make such a contract. That is one answer. Another 
answer is that the Government has the power to tax all these banks, 
and it can recoup itself by taxation. The amount of fai lures of banks 
at any time can be ascertained, and the Government is able, if required, 
to pay out its own money, and then is able to recoup by making the 
other banks pay up. 

Mr. Warner. Can it do so except as a matter of the future? 

Mr. White. No. 

Mr. Warner. Then, as a matter of actual fact, would it not have to 
meet the responsibility from the Treasury — with the only resource left 
to tax other banks that were not responsible for the immediate exigency 
which caused it to lose money? 

Mr. Johnson, of Indiana. That is the whole Baltimore plan. Might 
it not be possible that the Government officials would be a little more 
alert to examine banks if they knew that by the failure of banks the 
Government would have to redeem their notes from its own funds? 

Mr. White. Yes; not only more alert, but they have the power to 
take a bank by the collar and force it to make good the loss. 

Mr. Warner. Do you think it necessary for the security of the 
notes that the Government should assume that responsibility? 

Mr. White. I do not. I think it is desiiabV but not necessary. I 



NATIONAL CURRENCY AND BANKING SYSTEM. 165 

think it is desirable, because it gives unlimited credit to the bank note, 
and that is understood by the public. 

Mr. Warner. As a matter of fact, after one or two years' experience, 
would not that plan, which was suggested by Mr. Butler, of people 
being used to taking money without loss upon it so work that people 
would become utterly indifferent as to the Government guarantee? 

Mr. White. Yes; there would be a constant tendency that way, just 
as there is in Canada. The Government there is not responsible, but 
the banks have unlimited credit. 

Mr. Warner. Which could not be added to by any Government guar- 
antee, could if? 

Mr. White. In Canada? 

Mr. Warner. In Canada. 

Mr. White. That I do not know, whether it could be added to or 
not, but I say that their credit is unlimited. 

Mr. Warner. If it is unlimited there is nothing to add. 

Mr. White. Yes; the credit is sufficient at all events. 

Mr. Warner. Is there not this danger if, by legislation, the Gov- 
ernment is put absolutely behind every bank note which it permits to 
circulate, that however carefully we may safeguard the issue by pres- 
ent law, there would be constantly left the temptation, in times of 
stress or whenever a part of our people thought they wanted more 
money, to take away one after another of those safeguards in order to 
enable currency to be issued more freely, and thus to bring about — 
gradually perhaps, but almost surely — a lessening of the dependence 
upon the guarantee and the increase of the dependence upon the Gov- 
ernment fiat? 

Mr. White. A tendency in Congress to do that? 

Mr. Warner. Yes. 

Mr. White. Of course Congress could remove the safeguard, and 
there would be that tendency, but I do not think it would be dangerous. 
You can hardly conceive of a condition of things where there would be 
more demand for money than there was last July and August. Con- 
gress was in session at that time, but Congress did not take any steps 
to make any more money. 

Mr. Warner. But has there been a Congress elected for the last ten 
years in which, if it had been known that the amount of currency could 
be increased by not in any way decreasing its safety so far as the abso- 
lute Government guarantee was concerned, there would not have been 
a very strong movement to take away the safeguards which obstructed 
the increase of the currency? 

Mr. White. That is altogether a matter of opinion upon a political 
question, but I should not consider that condition a dangerous one. 

Mr. Johnson, of Indiana. u White man is very uncertain " as to what 
he will do? 

Mr. White. Yes. 

Mr. Brosius. Unless the Canadian system has been recently changed, 
I understand that there are three kinds of notes there — the usual bank 
notes and what they call the Dominion notes. I understand that there 
is an issue of 820,000, 000 of Dominion notes ; that these are guaranteed 
by the Government of England. Am I right? 

Mr. White. I am not aware of that. 

Mr. Ellis. He said the contrary of that. 

M. Brosius. I say this Dominion issue of $20,000,000 is secured by 
Government securities? 



166 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. White. The Dominion issues are just like our own greenbacks; 
they are Government notes. 

Mr. Brosius. They are based upon securities, are they not ? 

Mr. White. The Government that issues them is itself the security. 

Mr. Brosius. Then there are no Government securities at all used in 
Canada as a basis for circulation? 

Mr. White. Not that I am aware of. 

Mr. Brosius. I have always understood — and I am sure I did not 
evolve it out of my own consciousness, because I must have got the 
information from reading books on the subject — that the Dominion issue 
of $20,000,000 is actually guaranteed by securities in the nature of our 
bonds. I may be mistaken, but I have the idea, and I must have 
acquired it from my reading, that not only is that so, but that the Eng- 
lish Government in some way guarantees those Dominion notes. Are 
you aware of anything of the kind ? 

Mr. White. 1 never heard of such a thing. 

Mr, Brosius. That leaves only about $35,000,000 of notes in Canada 
which are based upon credit alone. Do you think you can safely reason 
by analogy between our country and a country that does not do any 
more business, probably, take it altogether, or very little more, than 
one of the big dry goods houses in the city of New York, and which 
only has at best about $35,000,000 of notes in circulation ? Can you 
reason from the monetary system of such a country as that to the 
monetary system or the banking system of a country like the United 
States, where we have over a thousand millions of circulating paper? 

Mr. White. If the system is reasonable in itself, then the fact that 
it has the guarantee of a neighboring country adds force to the argu- 
ment. I do not think that this Baltimore plan depends on the question 
of what the system is in Canada at all. The Baltimore plan must 
depend on human reason. The question of the system in Canada is 
simply an additional argument in support of the Baltimore plan. 

Mr. Brosius. The principle being sound, might it not work much 
better in practice in a small country like Canada, with so limited an 
amount of circulation, and yet not work at all well in practice in a 
great country like ours? 

Mr. White. I do not see it that way. It is a matter of opinion, of 
course. 

Mr. Warner. I am just informed, from a very trustworthy source, 
that Mr. Brosius is correct, and that the Dominion $20,000,000 issues 
are secured partly by coin and partly by British securities. 

Mr. Brosius. I thought I was right. 

Mr. White. I simply said I had never heard of it, and I never have. 

Mr. Johnson, of Indiana. Mr. Warner asked you if you did not 
think that after a couple of years or so the people would acquire great 
faith in paper currency, even though the Government were not liable 
for its ultimate redemption. I will ask you if it is not of primary 
importance that the popular faith should attach to the currency from 
the very inception of its issue? 

Mr. White. I think so, decidedly. 

Mr. Johnson, of Indiana. Whether that is not the important thing, 
and that there shall be no experiments making results doubtful? 

Mr. White. I think it is very desirable. 

Mr. Hall. Is it not the fact that it was some years after the national- 
bank act was passed before that sort of currency became popular? 

Mr. White. I do not think there was ever any lack of faith in the 
national bank currency. 



NATIONAL CURRENCY AND BANKING SYSTEM. 167 

Mr. Hall. That it was not popular for several years after its first 
issue % 

Mr. White. I do not remember about that. You see in the original 
national banking law the Government was responsible for it. The 
national banking law was passed in 1863, and how could the notes be 
lacking in confidence when the Government was behind thein? 

Mr. Hall. They were looked on with disfavor on account of the 
repeal of certain State-bank laws. 

Mr. White. I know. 

Mr. Johnson, of Ohio. Was there not a time, before the 10 per cent 
tax was enacted, when the State-bank money and the national-bank 
money circulated together 1 ? 

Mr. White. Oh, yes. That is true. 

Mr. Johnson, of Ohio. I am entirely ignorant as to what the condi- 
tion was at that time. How were they paid? Which issue did the 
people prefer % 

Mr. White. The tax did not go into effect until August 1, 1866. 

Mr. Johnson, of Ohio. Before the tax went into effect, how did the 
national-bank currency and that of State banks operate together? 

Mr. White. They circulated side by side, and that is all I can say. 
I simply say that after the legal-tender act passed the State-bank 
notes became immediately redeemable in legal tender notes, and there- 
fore there conld be no difference between them, because the Govern- 
ment was behind both. 

Mr. Walker. Is it not a fact that the first national banking act 
was so drawn as to make it move profitable for the banks to remain 
under their State bank charters, not to abandon their State charters, 
and that the national currency was very limited in circulation until the 
10 per cent tax went into operation? 

Mr. White. Yes, sir. 

Mr. Johnson, of Indiana. I want to say that the question of confi- 
dence of the people in this currency was very different in 1863 from 
what it is now, because iu the interval the people have been educated 
to rely upon national-bank notes, for the reason that they have entire 
faith now in the Government as their ultimate redeemer. 

Mr. Cobb, of Alabama. Did you intend to say that the Gresham law 
operates on pamper currency in the same way in contracting that cur- 
rency as on the metallic money? 

Mr. White. I did not say anything about contracting currency. I 
said that the Gresham law operated on paper currency in the same way 
as on metallic currency if it had either a legal-tender law behind it or 
public opinion behind it sufficient to force both kinds into circulation. 

Mr. Cobb, of Alabama. Is it not true that the operation of the 
Gresham law on metallic money is to drive it from the country, but that 
its operation on paper money is to make it slower of circulation without 
altogether driving it out? 

Mr. White. Yes, that is it. 

Mr. Cobb, of Alabama. Then the same consequences do not follow 
in the application of the Gresham law to paper money as to metallic? 

Mr. White. You can not drive paper money out of the country. 

Mr. Cobb, of Alabama. Isov out of circulation. 

Mr. White. No, not entirely, because there are certain things that 
the superior currencj^ will do that the inferior will not. The inferior 
currency will have the field of general circulation, and the superior 
currency will have the field of circulation to the extent that it will pay 
certain debts and make exchanges in distant places when the other 
will not. 



168 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Gobb, of Alabama. Then does it not follow that that law does not 
properly operate upon paper currency to its full extent as it does upon 
metallic money? 

Mr. White. If the paper currency is a legal tender, then I think it 
does operate to its full extent, except that you can not drive it out of 
the country. 

Mr. Cobb, of Alabama. Nor hide it away. It is still in circulation for 
the time being, is it not? The law only causes it to be withdrawn 
temporarily, does it not? 

Mr. White. Yes. 

Mr. Oobb, of Alabama. Whereas, upon metallic money the effect of 
the law is to drive it entirely out of circulation? 

Mr. White. It drives the matallic money to foreign countries. 

Mr. Walker. I want Mr. White to be correct on the record. It is a 
fact, I believe, that the gold of this country increased during the period 
of suspension of specie payments and was larger just before resump- 
tion than prior to that time. Now, my point is that you did not intend 
to say that the Gresham law would drive gold out of the country, but 
out of circulation. 

Mr. White. Oh, yes; there was a great deal of gold in existence in 
New York during the war. 

Gentlemen, my train time has come, and I must ask to be excused. 
I am much obliged to you. 

The Chairman. The chair desires to state that Mr. Cornwall has 
not arrived, at least has not appeared before the committee, although 
he is in the city. The chair will therefore suggest that, if there is no 
other gentleman present who desires to be heard, the committee adjourn, 
after an executive session, to meet at 10 o'clock to-morrow morning in 
this room. 

The chair desires that the members of the committee will remain in 
the room for some executive business. 

Thereupon, at 3.30 o'clock p. m., the committee went into executive 
session, and shortly afterwards adjourned. 



Washington, D. C, Thursday, December IS, 1894. 
p [The committee met at 10 a. m. Present : The chairman (Mr. Springer) 
and Messrs. Sperry, Cox, Cobb of Missouri, Ellis, Cobb of Alabama, 
Warner, Johnson of Ohio, Black, Hall, Walker, Brosius, Henderson, 
Eussell, Haugen, and Johnson of Indiana. 



LETTER OF MR. R. B. FERRIS. 

Mr. Warner presemed a letter which he had received from Mr. li. B. 
Ferris, vice-president of the Bank of New York. 

The letter was ordered to be printed and is as follows : 

The Bank of New York, 
New York, December 12, 1894; 
Hon. J. DeWitt Warner. 

Dear Sir: As we have this morning the text of Secretary Carlisle's 
currency bill, I take occasion to make a few remarks. There seems to 
be no good reason why existing national banks who have United 
States bonds on deposit with the Comptroller of the Currency should 
not be allowed to continue as they are, either until their charters expire 



NATIONAL CURRENCY AND BANKING SYSTEM. 169 

or the deposited bonds are paid off. Section 7 seems like forcing the 
banks to do what they have not been consulted about, and, in consid- 
eration of what the national banks have done for the Treasury, is a little 
inconsiderate. 

The remark we so often hear, that a circulation based on deposit of 
bonds can not be elastic, is not strictly true. The reason the circula- 
tion of the national banks is not more elastic is the present method of 
redemption by the Department at Washington; it is a little slow. I do 
not mean to disparage the Department; the amount of work it does is 
immense, but the trouble is that only mutilated notes unfit for use 
are returned to the Department for redemption. This would be obvi- 
ated by the establishing of central redemption agencies, say, one in this 
city for the State of New York, then when banks hold a plethora of 
money it would be an easy matter to sort out the New York State 
notes (by their backs) and return them to the redemption agent. The 
issuing bank, on receipt of them, sorts out those unfit for use, sends 
them to Washington for new notes, and stows away the others in its 
vault until time of need. 

The notes being "on hand" reduces the amount of its tax and the 
bonds on deposit are earning interest. Now, when a bank finds there 
is a plethora of money, it makes a deposit of the United States notes 
with the Treasury, gets back its bonds, possibly sells them, and when 
the time of emergency comes, has to send on new bonds and wait the 
time when new notes can be printed, signed, and prepared for use; 
then the emergency may be passed. The fault is partly with the banks 
and partly with the system of redemption. Give the national banks 
par for their bonds and let them continue as they are, if they wish to. 

Section 10, providing for the issue of notes by State banks, without 
the provision of a sinking fund, as provided in section 5 for national 
banks, makes the bill simply an inflation measure, modified by the 
deposit of 30 per cent in legal- tender notes and the provision (section 
9) to cancel United States notes to the extent of 70 per cent of new 
circulation, issued when the Treasury has the means to do it. 

As a bill to substitute national bank notes for United States issues, 
it will be a failure, as it presents no inducements to solid banks to 
become insurers of the circulation of mushroom institutions, and the 
stimulant to organize State banks, not subject to United States inspec- 
tion, is questionable. 

Very respectfully, E. B. Ferris. 

Hon. J. DeWitt Warner. 

You are privileged to use my communications as you think proper. 

LETTER OF WILLIAM B. DANA. 

The chairman said that he had received a letter from Mr. William B. 
Dana, of the Commercial and Financial Chronicle. Mr. Dana was one 
of those gentlemen who had been invited to appear before the committee, 
and he stated his inability to do so. 

The letter was ordered to be printed in the proceedings of the com- 
mittee, and is as follows : 

THE C03OIERCIAL AND FINANCIAL CHRONICLE. 

New York, December 12, 1S94. 
My Dear Sir: 1 thank you for your request to appear before your 
committee on the 15th instant for the purpose of attempting to give 



170 NATIONAL CURRENCY AND BANKING SYSTEM. 

information with reference to banking and currency matters. My 
engagements are such at this period of the year as to render it impos- 
sible for me to be present. Excuse me if I acid that industrial interests 
would no doubt be greatly benefited if Congress could pass a bank- 
note measure and at the same time provide some method for gradually 
getting rid of the legal-tender notes as the bank notes were issued. 
Mr. Carlisle's plan has this double purpose in view. 
Thanking you again for your invitation, I remain, 
Very truly yours, 

William B. Dana. 
Hon. William M. Springer, 

Chairman Banking and Currency Committee. 

Washington, B. C. 



STATEMENT OF MR. WILLIAM C. CORNWELL. 

The chairman stated to the committee that Mr. Cornwell, president 
of the City Bank of Buffalo and president of the State Bankers' Asso- 
ciation of the State of New York, had been notified to appear before 
the committee and was now present. The committee would be pleased 
to have Mr. Cornwell make any statement he might desire, and after 
that members of the committee might desire to put some questions 
to him. 

Mr. Cornwell said : Mr. Chairman and gentlemen, I want to make, 
if you please, three very brief suggestions, which, in the order that they 
are made, seem to me to be the most important in the situation as 
regards the finances of the United States. 

First and most important, in my opinion, is that the greenbacks and 
Treasury notes shall be redeemed and canceled. 

The real business of a Government, as regards money, is to stamp 
on gold and silver its fineness and weight. If a Government stops 
there it seems to me that it has done its greatest duty, and almost its 
entire duty in the premises. The Government has no right to issue 
paper with nothing back of it, and to make that paper legal tender. 
It has no right to create a currency, and by acts of law to force the 
people to take it at full value without regard to its intrinsic worth. 
I say it has no right, because all such issues up to date have ended in 
trouble. History proves that the greenbacks and Treasury notes are 
of that character. 

They are the Government's notes to the extent of $500,000,000, pay- 
able on demand and payable in gold. They have caused trouble enough 
already. They are a constant menace to the gold reserve. They 
should be paid off. 

My second suggestion is that the vacancy created by the retirement 
of the legal-tender notes should be filled with bank notes. 

The best currency of the best nations to-day is mainly bank notes, 
which are a first lien on the assets of the bank. These assets are com- 
mercial possessions, representing the product of the brain and muscle 
of millions of people. They are the wealth of the nation. What bet- 
ter basis for circulation can there be than that — the actual wealth of 
the nation? 

To fill the vacancy created by the retirement of legal-tender notes, 
and as fast as they are retired automatically national banks should be 
allowed to issue notes to a percentage of their capital without bond 



NATIONAL CURRENCY AND RANKING SYSTEM. 171 

security, the notes to be a first lien on the assets of the bank, includ- 
ing the double liability of stockholders, with a guarantee fund 
made up by all the banks, the Government continuing to redeem and 
guarantee all notes. This, with a provision for an emergency issue, 
is practically the Baltimore plan. It is sufficiently good as far as it 
goes, and it goes far enough for the present. I think we could very 
well stop here and go on for a good many years without any other 
improvement. 

But I believe in a thorough investigation based upon experience as 
to what should be done, and for that reason, and to perfect the system 
further and to work out the complicated and delicate problems attend- 
ing it, an impartial expert commission should be appointed. 

I recapitulate : 

First. Betire legal-tender notes. 

Second. Let the national banks take out notes under the Baltimore 
plan to replace them. 

Third. Appoint an impartial expert commission to perfect the cur- 
rency system. 

Mr. Warner. What would be your plan fur the retirement of green- 
backs and Treasury notes ? 

Mr. Oornwell. The only way now open would be by the issue of 
low-rate bonds to redeem them with. 

Mr. Warner. You heard Secretary Carlisle's plan? 

Mr. Cornwell. Yes. 

Mr. Warner. That would provide for a quasi retirement of this 
greenback circulation for the time being? 

Mr. Cornwell. Yes. 

Mr. Warner. What do you think of that plan? 

Mr. Cornwell. As to the part which relates to the retirement of 
the greenbacks? I feel about it that it is not definite enough. The 
greenbacks are put away, but there is nothing to prevent their getting 
back again. 

Mr. Warner. To what extent do you regard as an obstruction to 
the issue of currency under that plan the requirement of the 30 per 
cent deposit? Is that an immaterial or a serious obstruction? 

Mr. Cornwell. No; I do not think it is an obstruction. 

Mr. Warner. Do you think that the deposit of 30 per cent in 
greenbacks under the Secretary's plan is necessary to the safety of the 
currency proposed to be issued under that plan? 

Mr. Cornwell. No; I do not. 

Mr. Warner. You think that it is quite safe without it? 

Mr. Cornwell. I would limit the issue of bank notes to 50 per cent 
of their capital instead of 75 per cent. 

Mr. Warner. Then you would limit the bank-note circulation of 
the country to a maximum of 50 per cent of the banking capital? 

Mr. Cornwell. Yes, 'at present, with the exception of an emergency 
circulation, which can only come into use in very serious times. 

Mr. Warner. You are in favor of that feature of the Baltimore plan? 

Mr. Cornwell. Yes; it is a simple way of meeting that point for 
the present. 

Mr. Warner. You would not lock up the greenbacks as a feature of 
your currency system? 

Mr. Cornwell. No; but before doing anything with the currency I 
would construct a plan to retire the greenbacks. 

Mr. Warner. As a separate measure? 



172 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Oornwell. Either separately or with, but first. 

Mr. Warner. Arid having no necessary connection with the issue 
of currency? 

Mr. Oornwell. Except that with retirement of greenbacks there 
would be contraction, and something must fill the place for a while at 
least. 

Mr. Warner. No connection except affording a broader field to the 
new circulation^ 

Mr. Oornwell. That is it. 

Mr. Warner. If, under the Secretary's plan, you deposited 30 per 
cent of greenbacks of the face value of the notes that you are to issue, 
that is an equivalent to a tax on the note circulation equal to the loss 
of interest on the 30 per cent of greenbacks deposited, is it not? 

Mr. Oornwell. The banks would take out that 30 per cent in their 
own notes, would they not, and instead of using greenbacks as cur- 
rency they would use their own notes? 

Mr. Warner. Taking the net gain of circulation (whatever it is), 
the deposit of the greenbacks as a condition for securing them is equiva- 
lent to the loss of interest on that 30 per cent deposited, is it not? 

Mr. Oornwell. Do I understand that you assume that Secretary 
Carlisle's plan involves the deposit of 30 per cent in any case? 

Mr. Warner. Thirty per cent of the circulation. Now, to the extent 
of the inability of the banks to get out a large part of the circulation 
which they are entitled to they would be hampered by nonprofit on 
that 30 per cent. 

Mr. Oornwell. To the extent to which it was hampered that would 
increase the obstruction to getting out currency. 

Mr. Warner. You think that it would act in that way? 

Mr. Oornwell. Yes. 

Mr. Warner. And would have a tendency to increase the interest 
charged to borrowers from the bank, would it not? 

Mr. Oornwell. If you start trom where we are now, with practically 
no profitable circulation 

Mr. Warner. 1 mean, as compared with any plan which did not 
involve that obstruction. 

Mr. Oornwell. Yes; I think it would add to the expense of the 
banks. Of course, competition comes in to take care of the borrower. 

Mr. Warner. Does not competition, in view of reasonable profit, 
come in to regulate the amount of currency to be taken out? 

Mr. Oornwell. That may have its effect. 

Mr. Warner. And would not interest be higher with the additional 
tax or with the obstruction arising from this 30 per cent deposit than 
if the 30 per cent was not required ? 

Mr. Oornwell. I think that would have its effect in regulating the 
rate of interest, though the effect would be very small. 

Mr. Warner. The effect, if any, however, would be to raise the rate 
of interest? 

Mr. Oornwell. Yes; rather to raise it than to depress it. 

Mr. Warner. In other words, bankers are going to do business at 
a profit if they do business at all? 

Mr. Oornwell. That is what they like to do. 

Mr. Warner. Your plan, however, would be to retire greenbacks 
by a bond issue? 

Mr. Oornwell. I think that would be the only way to do it now. 



NATIONAL CURRENCY AND BANKING SYSTEM. 173 

Mr. Warner. In reference to branch hanks, that subject lias been 
casually referred to here once or twice. In your opinion, is the ques- 
tion of any considerable importance in determining our currency 
system ? 

Mr. Cornwell. I think not now. It is a very important feature, 
but I do not think we ought to consider it now. 

Mr. Ellis. If I understood you, you stated that you believed the 
Government had no right to issue money with nothing back of it. I 
do not think that that was really what you meant to say, perhaps. Do 
you think that the Government has the power to issue money of any 
kind beyond the power given to it to coin money and to regulate the 
value of foreign coins? 

Mr. (Iornwell. That is practically where the Government authority 
should end. 

Mr. Ellis. You also advocate the issue of bonds and takiug up of 
greenbacks, and you think that the vacuum occasioned by that would 
be tilled by the banks which would issue bank notes in lieu of the 
greenbacks"? 

Mr. Cornwell. Should be filled. 

Mr. Ellis. Do you believe that if the greenbacks and Treasury notes 
were all redeemed and taken in by the Treasury, the banks would 
issue circulation in lieu of them! 

Mr. Cornwell. I think that in order to avoid contraction the issue 
of bank notes and the retirement of legal-tender notes should be coin- 
cident and automatic. 

Mr. Ellis. Do you mean to say by that that you would advise a 
provision requiring the national banks or the banks organized under 
this system you propose, to take out circulating notes to an amount 
equal to the amount of Government notes taken in? 

Mr. Cornwell. Either that or that the Government should be 
required to call in and cancel greenbacks as the national-bank notes 
are taken out. 

Mr. Ellis. I do not think I quite understand your objection to the 
plan suggested by the Secretary of the Treasury of depositing legal- 
tender notes to secure bank circulation. What do I understand your 
objection to that to be! 

Mr. Cornwell. That would be a temporary retirement of that 
amount of greenbacks. The Secretary's bill further provides for an 
optional retirement by the Secretary. What I say is that before we 
begin to issue bank notes we ought to get rid of the legal-tender notes, 
and that there should be a definite arrangement by which as the bank 
notes go out the legal-tender notes come in and be canceled. 

Mr. Ellis. What do you think of that provision in the plan proposed 
by the Secretary of the Treasury which requires every bank which goes 
into this scheme to become the guarantor of the liabilities of other 
banks'? 

Mr. Cornwell. That practically is a provision in the Baltimore 
plan, though I think that in the talk on this subject before the com- 
mittee that has not been brought out. It seems to me that section 6 
of the Baltimore plan states that when the fund has reached 5 per cent 
the tax shall be suspended, and that when it goes below 5 per cent it 
shall be resumed. Now, if the 5 per cent fund is exhausted and the 
Comptroller of the Currency deems it necessary to replenish it, he does 
it by a tax on the banks of one half of 1 per cent, so that eventually 
the Baltimore plan throws the entire responsibility onto the banks, 



174 NATIONAL CURRENCY AND BANKING SYSTEM. 

although the Government has the responsibility at the start, has it at 
the time of the failed bank, and has it at taking up the notes of the 
failed bank, but eventually gets it back. 

Mr. Ellis. What in your opinion would be the effect of any system 
which requires every bank to become the guarantor of the notes issued 
by all the other banks of the country? 

Mr. Oornwell. As a practical piece of business it should not be 
done. But the currency is a little higher than and apart from ordinary 
commercial business. It has got to be protected and to be made abso- 
lutely secure, and in my opinion that is the only way to do it. 

Mr. Ellis. Do you believe that banks would be organized under a 
system of this sort if they understood in advance that ultimately their 
assets could.be assessed and made liable for the notes of all failed 
banks throughout the country? 

Mr. Oornwell. Under the protection of the national-banking sys- 
tem as perfected at present and guarded in every way, I do. 

Mr. Ellis. I understand from that that you confine the system to a 
national bank system exclusively? 

Mr. Oornwell. I would, because the national banking system has 
been in operation thirty years or more, and during all that period 
everything has been done to perfect it as far as possible. I believe 
that a man who has been in business thirty-one years successfully is a 
better man to take charge of a great interest than a man who is just 
starting. 

Mr. Ellis. What is your opinion as to the feature of the plan pro- 
posed by the Secretary of the Treasury, which proposes to exempt 
State banks from taxation on certain conditions? 

Mr. Oornwell. I feel that the introduction of the State-bank feature 
in the Secretary's plan is the weak part of the whole plan. I think 
that the Secretary himself thinks so, because on pages 41 and 42 of 
your proceedings he says that he regards that as entirely a side issue 
and does not give much importance to it. May I quote? 

Mr. Ellis. Yes. 

Mr. Oornwell. The Secretary says: 

Secretary Carlisle. I confess, Judge Cobb, that I do not attach the same impor- 
tance to this State-bank provision that perhaps some other gentlemen do. I do not 
know to what extent it would be utilized, even if it should be adopted. But still 
there seems to be a demand in some parts of the country for such a system, and I am 
willing to accede to that demand. 

Further on the Secretary says : 

I attach less importance to the State-banking system than many other gentlemen 
do ; but there seems to be a demand in certain parts of the country for State banks. 

And in other places the Secretary expresses himself still more indif- 
ferently. 

Mr. Ellis. If that feature of the plan suggested by the Secretary of 
the Treasury is adopted, would it in your opinion increase or dimiuish, 
or what effect would it have on the circulation that might be issued? 
Would it tend to give a larger circulation than the national-bank sys- 
tem if that system were simply adhered to? 

Mr. Oornwell. There are just four things which we ought to have 
in the, currency. First, security ; second, convertibility; third, uniform- 
ity; and last, elasticity. Now, we have got the first three. We have 
got them in magnificent shape. We have got absolute security. We 
have got convertibility. We have got uniformity. Now, the introduc- 
tion of a State-bank arrangement would wipe out uniformity, the thing 



NATIONAL CURRENCY AND BANKING SYSTEM. 175 

for which, with the other two, the United. States are celebrated all over 
the world. These three conditions of the national-bank notes were so 
brilliant that abont fifteen years ago there was an element in the Cana- 
dian Parliament so infatuated with our national-bank note system that 
it was pressed very strongly that the Canadians should give up their 
system and adopt our national banking system simply because these 
three qualities of a first-class currency — security, convertibility, and 
uniformity — were predominant. Now, if we go into this State-bank 
arrangement we are going to wipe out one brilliant feature of the 
national currency, and that is uniformity. 

Mr. Cox. Do not the same features attach to the Canadian notes? 

Mr. Coenwell. Well, they do now under the Canadian bank bill of 
1890. The only feature which the Canadians did not have was uniform- 
ity in this way, that their bills were subject to a discount under certain 
conditions. The bills of failed banks and bills of a distant province 
were subject to a discount. That was remedied by establishing cen- 
tral redemption agencies in all the hvge cities in Canada, from Ontario 
to Manitoba; and further, by making the notes of failed banks to begin 
drawing interest at once at 6 per cent. If a bank fails in Canada its 
notes begin to draw interest at 6 per cent, and therefore they are 
eagerly sought after by investors. There is no danger of their going 
to a discount and they might go to a premium. 

Mr. Warner. The Canadian banks are entirely independent of each 
other, are they not! 

Mr. Cornwell. Yes. 

Mr. Warner. So that in that particular .they are just as independ- 
ent essentially as would be the banks of one State of the banks of 
another State? 

Mr. Cornwell. Yes. 

Mr. Warner. Now, supposing that State-bank currency was per- 
mitted under such or similar safeguards as have been provided by the 
Canadian banking act, would, in your opinion, the currency lack that 
measure of uniformity and security which you consider so desirable? 

Mr. Cornwell. I fear it would, in this way. The banks in Canada 
are only 38 in number. Their capital is all very heavy. The Bank of 
Montreal has twelve millions of capital and is one of the great bul- 
warks of the nation. The banks are very few in number, are largely 
capitalized, and are hedged about by the most perfect education of 
employes, and inspectors and managers, and in that way they are 
very much safer than we can possibly suppose our State banks can be 
made at once. The limit of the capital of banks of issue is at least 
$500,000 with $250,000 paid in. My own opinion is that there should be 
a limit of capital to banks issuing notes ; that is, that no small bank shall 
issue notes. My own feeling is that a bank should have $500,000 cap- 
ital in order to be allowed to issue notes — simply as a matter of safety 
and as a matter of fostering large capital, which, I think, is a very 
great need in this country. 

Mr. Warner. Would it be proper to say, so far as you can suggest, 
the objections to a State-bank currency, under limitations similar to 
those prescribed by the Canadian act, that our State bank system would 
lack, at least at the start, the effect of the great branch-bank system 
of Canada; and that our State-bank currency Avould be based upon 
banks, the capital of which would be, in your opinion, on the average, 
too small; and that they would be handled by legislators or people, 
who, in your opinion, have not had the banking experience and e&uca- 



176 NATIONAL CURRENCY AND BANKING SYSTEM. 

tion of those of Canada? In other words, so far as the main provisions 
of the law are concerned, our State-bank system would not lack that 
uniformity, which you consider desirable, if they were subjected to pro- 
visions similar to those prescribed by the Canadian banking act? 

Mr. Cornwell. All the banks of Canada are under the government 
of the Dominion, whereas our State banks would be under forty-four 
different governments. 

Mr. Warner. But if they were all brought under the same safe- 
guards so far as note issues are concerned, that would produce no dif- 
ferent effect, would it? 

Mr. Cornwell. No; and that is what has been done in the national 
banking system, and I can not myself see why any bank should want 
to be a State bank if there is any profit for it in going into the national- 
bank system. My own bank is a State bank because that is a very 
respectable thing to be in the State of New York, and because there is 
no profit in the national-bank system; but I will say frankly that if 
there were more profit in the national banking system we would change 
our institution without any feeling of patriotic sentiment, because I do 
not think it is a thing .where that sentiment finds place. 

Mr. Warner. My question was as to whether under these restric- 
tions the State-bank currency would not have the uniformity which 
you suggest is so desirable? 

Mr. Cornwell. Under one management I think it would. 

Mr. Warner. So far as the requisites for circulation are concerned, 
would not the circulation have that extent of uniformity which you con- 
sider desirable? 

Mr. Cornwell. You would have to adopt toward the State banks 
the provision of inspection. 

Mr. Warner. With that provision do you think it would have 
uniformity ? 

Mr. Cornwell. Yes; that system of inspection is provided for in 
Canada. 

Mr. Warner. May I ask whether there is any other safeguard that 
occurs to you beyond the provisions that the notes of failed banks shall 
paj^ 6 per cent interest, and beyond the provision for inspection, that 
is not practically included in Mr. Carlisle's plan? He provides for the 
double liability of stockholders, for the first lien upon the assets of the 
bank, and for a limitation of the amount of notes to be taken out by a 
bank not to exceed 75 per cent of its capital. That, I believe, is more 
stringent than the Canadian provision. 

Mr. Cornwell. Do you mean as regards national banks? 

Mr. Warner Ino; I mean as regards State banks. Suppose there 
were added to Mr. Carlisle's plan definite provisions for inspection, and 
also that the notes of failed banks should bear interest from the time of 
their dishonoring by the parent bank at 6 per cent so as to add to the 
inducement which you suggest of their being taken up and not being a 
burden upon the circulation. Then add provision for a redemption 
fund and for a safety fund. With those provisions, is there any reason 
why the State-bank currency would not have that unifoimity which you 
consider so desirable? 

Mr. Cornwell. And what penalty would you provide for the non- 
observance of those conditions? 

Mr. Warner. The collection of the 10 per cent tax. 

Mr. Cornwell. One thing would have to be provided — that their 
bills should be under one management. 



NATIONAL CURRENCY AND BANKING SYSTEM. 177 

Mr. Warner. Suppose that their bills were printed and registered 
by the Comptroller of the Currency! 

Mr. Walker. Suppose they were national-bank notes? 

Mr. Cornwell. Let me tell you one thing about counterfeiting. 
That business has been reduced to a minimum. How! By the Secret 
Service of the Government, which has concentrated its energies in fol- 
lowing up counterfeiters. With the State banks that feature could 
not be arranged, I fear; at any rate, not for a long time, because the 
thing must be concentrated under one head. Counterfeiting would be 
carried on simply because there would not be a service which goes after 
these fellows around the world and puts them into State prisons, as is 
done with those who counterfeit national-bank notes. 

Mr. Warner. Suppose the banking law is so amended as to make 
the counterfeiting of State-bank notes a Federal offense, too 1 ? 

Mr. Cornwell. If you do that, all right. 

Mr. Warner. I want to show that there is no inherent difficulty, 
outside of purely administrative features, in allowing State banks to 
issue currency under conditions which would insure the reasonable uni- 
formity on which you would insist and which you consider so desirable. 

Mr. Henderson. When you establish these conditions, I suppose 
you contemplate that the National Government shall do it. 

Mr. Hall. Have you read section 5 of Secretary Carlisle's bill 
carefully % I mean the one providing for the guarantee fund and 
the safety fund and the redemption of the bank notes where a bank 
fails. 

Mr. Cornwell. I have. 

Mr. Hall. Do you believe that there is anything in that section 
which would tend to prevent or would prevent banks from taking out 
charters under the provisions of this law? 

Mr. Cornwell. I do not. 

Mr. Johnson, of Indiana. You said early in your statement some- 
thing about the creation of a commission on this banking and currency 
matter. I wish you would elaborate your ideas a little more fully on 
that subject. 

Mr. Cornwell. That is a matter to which I do not attach a great 
deal of importance, for the reason that if my first suggestions are car- 
ried out the work of this commission would be simply to deliberate, 
and might extend over a good many years. It would be simply in the 
direction of being advisory with the banks for perfecting the system 
as thus changed. 

Mr. Johnson, of Indiana. I thought you had reference, possibly, to 
the establishment of a commission, with a view to investigating defects 
and suggesting remedies and reporting at some subsequent session of 
Congress, with the view of framing and passing a complete currency 
system at that time. 

Mr. Cornwell. That might be done, but it should be done with the 
utmost deliberation, for the reason that the need of such a commission, 
in my opinion, would not be pressing after the legal- tender notes were 
retired and the Baltimore plan adopted. 

Mr. Johnson, of Indiana. What I want to get at is this: Would you 
think it advisable to have a commission of the kind established to make 
a report before Congress attempts currency revision? 

Mr. Cornwell. JSTo, sir; not until these two things are done. 

Mr. Johnson, of Indiana. You think there is a necessity for imme- 
diate legislation % 

Mr. Cornwell. I think so. 
NAT cur 12 



178 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Indiana. Do you think that proper and wise legis- 
lation can be obtained at once? 

Mr. Cornwell. I do. 

Mr. Johnson, of Indiana. I understood you to say to Mr. Warner 
that the 30 per cent guarantee required to be paid up by the banks 
under Mr. Carlisle's plan would not render the circulation of bank 
notes unprofitable 1 ? 

Mr. Cornwell. No; I did not say that. 

Mr. Johnson, of Indiana. Do you consider that phase of the plan 
as being objectionable on the ground that it would deprive the circu- 
lation of necessary profit to the banks? 

Mr. Oornwell. No; that was not my objection to it. My objection 
to it was that it seemed to me unnecessary and that it did not retire 
the greenbacks permanently. 

Mr. Johnson, of Indiana. Would you consider it objectionable on 
the ground that it would interfere with the profits which the banks 
would make on their circulation? 

Mr. Oornwell. No, not on that ground. It deprives them of a cer- 
tain amount of profit, but as the banks have been deprived for a good 
many years of any profit whatever, it is a question of getting as much 
as they can. 

Mr. Johnson, of Indiana. One of Mr. Carlisle's purposes in requir- 
ing the deposit in the Treasury of greenbacks and Treasury notes issued 
under the act of 1890, when circulating bank notes are taken out, is to 
relieve the Treasury frcm the drain of gold caused by the presentation 
of those greenbacks and Treasury notes. Do you think that any plan 
which falls short of the absolute and immediate taking up and cancel- 
lation of all the United States Treasury notes and the notes issued 
under the act of 1890 will accomplish that purpose? 

Mr. Oornwell. I think that that is the best way to accomplish it. 
I do think, as a compromise only, that if it can be arranged very grad- 
ually and absolutely, so that the retirement is going on and will go on,, 
that will probably help matters materially. 

Mr. Johnson, of Indiana. If Mr. Carlisle's plan, for instance, would 
only retire about one half of these Government issues, would not the 
other half be utilized to draw gold out of the Treasury just as expedi- 
tiously and just as effectively as though they were all in circulation? 

Mr. Cornwell. Yes, sir. Whatever plan may be adopted must 
involve their entire retirement ; that is, the retirement of the whole issue. 

Mr. Johnson, of Indiana. The leaving of part of them off deposit 
would simply result in that part being used more frequently than 
though the whole were left out, with which to drain the Treasury of 
its gold, would it not? 

Mr. Cornwell. I think it would. 

Mr. Johnson, of Indiana. Are you in favor of the Government being 
ultimately responsible for the final redemption of bank notes in any 
plan that may be devised by Congress? 

Mr. Cornwell. No. 

Mr. Johnson, of Indiana. That is, however, a provision in the Bal- 
timore plan, is it not? 

Mr. Oornwell. No, sir. The Baltimore plan provides for a contin- 
uation of the assessment under the 5 per cent redemption fund when- 
ever the Comptroller of the Currency deems it necessary. 

Mr. Johnson, ol Indiana. You differ from my conception of the 
Baltimore plan and from that given by the other gentlemen who have 
appeared here in advocacy of it in your answer to my last question. 



NATIONAL CURRENCY AND BANKING SYSTEM. 179 

Mr. Cornwell. I know, but I can not read section 6 in any other 
way (reading) : 

Sec. 6. Create a " guarantee fund" through the deposit by each bank of two per 
centum upon the amount of circulation received the first year. Thereafter impose 
a tax of one-half of one per centum upon the average amount of outstanding circu- 
lation, the same to be paid into this fund until it shall equal live per centum of the 
entire circulation outstanding, when the collection of such tax shall be suspended, 
to be resumed whenever the Comptroller of the Currency shall deem it necessary. 

Mr. Johnson, of Indiana. But suppose the other fund out of which 
the Government is to recoup itself is exhausted, then the payment of 
these notes of failed banks would be an ultimate liability on the 
Government? 

Mr. Oornwell. Which it provides for by replenishment of the guar- 
antee fund. 

Mr. Ellis. For what purpose? 

Mr. Oornwell. Whenever the Comptroller of the Currency deems 
it necessary, and I can not but think that he would deem it necessary 
if the fund was gone. 

Mr. Ellis. The Government would not have any authority to satisfy 
itself out of the fund thus assessed and made good, would it? 

Mr. Oornwell. I think it would. The plan may not, in so many 
words, provide for it, but it seems absolutely to follow what is done 
under section 6. The Government pays the notes of all failed banks 
out of this fund. Now, if the fund is depleted one-half the Comp- 
troller of the Currency begins to assess the banks again until the 5 
per cent fund is made up. 

Mr. Ellis. But would the Government have a right to recoup itself 
out of that fund ? 

Mr. Cornwell. Certainly, because the Government makes an 
advance only. 

Mr. Johnson, of Indiana. Laying aside the question as to the proper 
consideration of the Baltimore plan, what is your individual opinion as 
to whether or not the Government should become ultimately liable to 
the note holder for the payment of the notes of failed banks? 

Mr. Cornwell. I do not think it should. 

Mr. Johnson, of Indiana. Would not the knowledge on the part o± 
the people that the Government was ultimately liable have a very strong 
tendency to give that popular confidence in the money which is essen- 
tial to its success ? 

Mr. Cornwell. Not any more than the Government's guarantee, 
which is involved in this matter. If it is provided that the Govern- 
ment shall pay these notes, the Government guarantees them. 

Mr. Johnson, of Indiana. That amounts, then, to ultimate Govern- 
ment liability, does it not? 

Mr. Cornwell. It may, but the Government gets its money back. 
The Government acts merely as a creditor, advancing money with the 
intention of taking up the notes. 

Mr. Johnson, of Indiana. But suppose the Government does not get 
its money back? 

Mr. Cornwell. The only condition under which the Government 
does not get it back would be the failure of every bank in the United 
States without assets enough to pay the outstanding circulation. 

Mr. Johnson, of Indiana. Do you take into consideration in estab- 
lishing a sound currency the fact that the public impression as to the 
safety of the currency ought to be taken into account? 

Mr. Cornwell. I do, and for that reason I am more lenient in the 
matter of Government gurantee than I would otherwise be. The 



180 NATIONAL CURRENCY AND BANKING SYSTEM. 

people of the United States are used to a currency, as far as the 
national banks are concerned, which is good in a week or a month or 
a year, and they never look at the character of a bill. 

Mr. Johnson, of Indiana. They have faith in them because they 
feel that the Government is ultimately liable'? 

Mr. Coenwell. Yes. 

Mr. Johnson, of Indiana. Than you would have a Government 
guarantee so strong as to be equivalent to ultimate Government lia- 
bility? 

Mr. Coenwell. It would amount to the same thing. I advocate 
that now because I do not believe in radical changes in the present 
condition as to security. 

Mr. Johnson, of Indiana. Is there any danger that undue inflation 
would come from this system which you have advocated, and if so how 
would you guard against it ? 

Mr. Coenwell. If the. retirement of the greenbacks and the outgo- 
ing of the new national-bank notes were automatic there could not be 
inflation beyond what there is at present. 

Mr. Johnson, of Indiana. But would the plan contemplate that more 
money might be taken out by the banks than the amount of the green- 
backs retired? 

Mr. Coenwell. No, not yet. 

Mr. Johnson, of Indiana. That would be the case under Mr. Car- 
lisle's plan, would it not? 

Mr. Coenwell. I think it would. 

Mr. Johnson, of Indiana. Then what have you to say, if anything, 
as to the danger of inflation under Mr. Carlisle's plan? 

Mr. Coenwell. I say that the retirement of the greenbacks should 
be automatic with the issue of the new bank notes, and that the issue 
of new bank notes at present should not go beyond the amount of 
greenbacks retired. 

Mr. Johnson, of Indiana. Therefore, you disapprove of that feature 
of Mr. Carlisle's plan? 

Mr. Coenwell. Yes. 

Mr. Johnson, of Indiana. Why would you have the Government 
guarantee continued? 

Mr. Coenwell. On the ground that the people are used to it. I 
would keep up the redemption of national notes in the Treasury and 
subtreasury in lawful money just as at present. 

Mr. Johnson, of Indiana. Is this Canadian system national in its 
character, and under one central governmental control? 

Mr. Coenwell. Yes, sir. 

Mr. Johnson, of Indiana. And the provisions of the charters of 
each of the banks are precisely the same? 

Mr. Coenwell. There are some one or two old banks in Canada 
under special charters, and have been for fifty years or more. These 
are not changed materially, except as to the regulation of currency 
issue. 

Mr. Johnson, of Indiana. These charters are from 

Mr. Coenwell. From the Royal Government of England, and the 
charters of the other banks are from the Dominion of Canada. 

Mr. Waenee. When you speak of the charters of one or two banks 
in Canada, that may refer to forty or fifty bank branches, may it not? 

Mr. Coenwell. Yes. 

Mr. Waenee. So as to be a considerable portion of the banking of 
the Dominion? 



NATIONAL CURRENCY AND BANKING SYSTEM. 181 

Mr. Johnson, of Indiana. There are no such things as State or pro- 
vincial banks in the Canadian system, are there? 

Mr. Coenwell. No, sir. 

Mr. Johnson, of Indiana. Nothing akin to what a State bank sys- 
tem would be in our Government? 

Mr. Coenwell. Nothing of the kind. 

Mr. Johnson, of Indiana. Which do you think would be the safest 
and best adapted to the needs of our people, a single system under 
national control, or a system under State control? 

Mr. Coenwell. A single system under national control. 

Mr. Johnson, of Indiana. Which do you think would be the safest 
and best, a single system under national control or a system under 
State control except as to certain specific conditions imposed by national 
authority? 

Mr. Cornwell. A single system under national control without any 
mixture. 

Mr. Johnson, of Indiana. If you would undertake to authorize 
State banks to issue currency under certain conditions and restrictions 
would you not deem it necessary to impose conditions and restric- 
tions upon these banks to the extent that it would virtually make them 
national banks ? 

Mr. Cornwell. I would. 

Mr. Warner. With respect to their currency issue? 

Mr. Cornwell. With respect to their currency issue and to inspec- 
tion and to penalties for violation of the conditions. 

Mr. Johnson, of Indiana. Multiplicity in systems of issuing paper 
money would almost necessarily beget some system that would be con- 
sidered safer than others, would it not? 

Mr. Cornwell. Yes. 

Mr. Johnson, of Indiana. And would not that very fact have a 
tendency to beget preferences in money? 

Mr. Cornwell. Certainly. 

Mr. Johnson, of Indiana. And would not that have a tendency to 
disturb the uniformity of the currency? 

Mr. Cornwell. It would. 

Mr. Johnson, of Indiana. And would it not be disastrous in its 
effects? 

Mr. Cornwell. It would make trouble, and would be very unde- 
sirable. 

Mr. Johnson, of Indiana. Are you familiar with the action of the 
German Government in taking up the paper money of the various 
German states and substituting therefor one system under national 
control? 

Mr. Cornwell. I have not followed it up particularly. Of course I 
am aware of it. 

Mr. Johnson, of Indiana. That was done not long ago, was it not? 

Mr. Cornwell. Yes. 

Mr. Warner. The provisions of Mr. Carlisle's plan dispensing with 
the necessity of a reserve in the case of national banks — do you con- 
sider that as an important modification? 

Mr. Cornwell. I consider it right. 

Mr. Warner. As to the $10 limit below which the denomination 
of currency to be issued shall not go — what is your opinion upon that? 

Mr. Cornwell. I do not consider that so very important. I think 
that a $5 limit would be better. Of course the idea is to allow 
the circulation of silver, which is a thing to be desired — subsidiarily. 

Mr. Warner. Now, as to new banks coming in under the Baltimore 



182 NATIONAL CURRENCY AND BANKING SYSTEM. 






plan. After it has been in operation four or five years a new bank, 
as a condition of taking out currency, would have to deposit the whole 
5 per cent guarantee fund. 

Mr Cornwell. It would have to pay in as much as if it had started 
in the beginniug. 

Mr. Warner. In other words, practically 5 per cent. 

Mr. Cornwell. Practically the whole 5 per cent. 

Mr. Warner. Would not that be an almost imperative obstruction 
against new banks coming in under the Baltimore plan after it had been 
running four or five years'? 

Mr. Cornwell. I do not think so. Everyone wishing to join a 
club or institution would pay an initiation fee and that would be in the 
shape of an initiation fee for a privilege. The privilege would be valu- 
able. The bank might pay 5 per cent into safety fund and not make 
anything on its circulation the first year, but the next year it would 
begin to make a profit. 

Mr. Warner. Your idea is that the Baltimore plan would make such 
a desirable club of banks that the initiation fee would be gladly paid 
to get into it. 

Mr. Cornwell. Perhaps I had better not say any thing about that. 

Mr. Warner. But you think the franchise would be so valuable in 
a few years that new banks would be glad to pay the initiation fee to 
get into it. 

Mr. Cornwall. I think that it is not good judgment to induce peo- 
ple to go into the banking business too rapidly. 

Mr. Warner. And this would keep them from doing it? 

Mr. Cornwell. This would tend to make them consider whether it 
was worth their while. 

Mr. Warner. To pay the 5 per cent? 

Mr. Cornwell. To pay the 5 per cent. That is, whether they are 
going to make all the money the first year or whether they will make 
the money afterwards. 

Mr. Warner. And risk the 5 per cent the first year? 

Mr. Cornwell. Yes. 

Mr. Warner. As to redemption, would you suggest broader facil- 
ities for redemption than those suggested by the Baltimore plan ? Are 
you familiar with it? 

Mr. Cornwell. I am familiar with it. I would not now, but I would 
ultimately. 

Mr. Warner. You think that ultimately a more liberal plan should 
be adopted? 

Mr. Cornwell. Ultimately. 

Mr. Warner. As to the charters of Canadian banks, have they not 
been issued under successive governments, first under the British Gov- 
ernment and then under the Canadian Government? 

Mr. Cornwell. Yes. There are two or three banks under old char- 
ters. 

Mr. Warner. How old ? 

Mr. Cornwell. Fifty years or more. The Bank of British North 
America, the Bank oi British Columbia, and the Merchants' Bank of 
Prince Edward Island are three banks under old charters. 

Mr. Warner. But there have been modifications in the banking law 
of Canada from time to time since, have there not? 

Mr. Cornwell. Yes. These banks are nearly all banks that have 
been continued from time to time. 

Mr. Warner. So that when you come to take the number of branches 



NATIONAL CURRENCY AND BANKING SYSTEM. 183 

-fchat each bank may have, there is a great variety, not in conditions 
for tbe issue of currency, but in the other parts of the charters of 
Canadian banks? 

Mr. Comwell. Their charters were held when they came in under 
the Dominion laws, just as our State banks at the beginning of the war 
came in under the national banking law. The charters of our State 
banks were changed very little when they came into the national sys- 
tem. The Bank of North America, in Philadelphia, which has sur- 
vived one change of dynasty, is an example of that. It is now a national 
Irnnk. 

Mr. Warner. But the uniformity provided by Canadian law with 
reference to currency does not enforce uniformity in the other provi- 
sions of the charters of the several banks. 

Mr. Cornwell. No. 

Mr. Hall. Do you believe that the greenbacks ought to be retired 
by funding? 

Mr. Cornwell. I believe that they ought to be retired, and that the 
only feasible way to retire them at present is to fund them. 

Mr. Hall. Have you any system other than funding by which you 
would retire them under the Baltimore plan? 

Mr. Cornwell. There is no provision in the Baltimore plan for 
retiring greenbacks. 

Mr. Hall. The funding of the greenbacks would furnish a basis for 
a continuation of the national-banking system in the United States for 
an indefinite time in the future, would it not? 

Mr. Cornwell. Yes. 

Mr. Hall. It would furnish about four hundred and ninety millions 
of additional bonds which national banks could continue to bank npon? 

Mr. Cornwell. Yes. 

Mr. Hall. Do you believe that the greenbacks are now creating any 
of this financial trouble? 

Mr. Cornwell. I do. 

Mr. Hall. By draining the gold from the Treasury? 

Mr. Cornwell. Again and again. 

Mr. Hall. Under Mr. Carlisle's plan there is a provision for placing 
30 per cent of bank circulation in greenbacks, so that they can not be 
used for draining the gold from the Treasury. 

Mr. Cornwell. Yes. 

Mr. Johnson, of Ohio. I asked you the question whether if the 
Carlisle plan left out any part of the greenbacks it would not be 
just as bad as if they had been all left out, and I understood your 
answer to be "yes." Now, let me ask you this question: If one-half 
•or more of the greenbacks were temporarily put where they could not 
be used as a bucket to dip the gold out of the Treasury, would not 
that tend to put the rest of the greenbacks at a premium as a basis for 
banking, so as to keep them from being used as a means of draining the 
Treasury of its gold ? 

Mr. Cornwell. I do not think that the foreign investor would look 
at it in that way. 

Mr. Johnson, of Indiana. Under the provisions of the Carlisle plan 
nothing but greenbacks and Treasury notes of 1890 can be used as a 
basis for banking? 

Mr. Cornwell. Yes. 

Mr. Johnson, of Indiana. Would not that fact tend to put green- 
backs at such a premium that they would not be used as an instrument 
■of draining the gold from the Treasury? 



184 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Corn well. It might have that temporary effect; but if a thing 
is bad and wrong, I do not believe in having anything to do with it. 

Mr. Johnson, of Ohio. Do you not as a practical man have to 
recognize the feelings of the people of the United States on an import- 
ant matter of this kind? 

Mr. Oornwell. As regards that sentiment, I do not believe that 
the business men of the United States (and these are the men who con- 
trol legislation when it comes to ultimate control) have any such affec- 
tion for the greeu backs as some people seem to think. I think that they 
hardly ever look to see whether the notes in their pockets are green- 
backs or not. The greenback has been good for many years because of 
the magnificent resources of the country. If a very rich man has some 
notes out, everybody is willing to take them, because they know that 
he is very rich. But I do not believe that business men, when they 
come to look into this question carefully as they are going to do, will 
have auy such affection for the greenback. 

Mr. Brosius. In your judgment, is the redemption and cancellation 
of the greenbacks and Treasury notes of sufficient importance at this 
time to justify the imposition on the people of the United States of 
the burden which the issue of bonds for that purpose would entail upon 
them? 

Mr. Cornwell. In my opinion it is of the very first importance, 
and the amount of interest which the Government would have to pay 
on this forced loan, on which it is now paying no interest, would be a 
mere trifle compared with the good which it would do, and compared 
with the bad which has been done. The few millions which the Gov- 
ernment would pay in interest by funding the greenbacks has been 
wiped out by hundreds of millions lost by the business men of the 
country because the Government was in that position. 

Mr. Brosius. The injury which the greenbacks and the Treasury 
notes are now doing to the country is in the way of affording means 
of draining the gold reserve? 

Mr. Cornwell. Yes. 

Mr. Brosius. Did we have any difficulty of that kind in this coun- 
try when we had a Treasury surplus instead of a deficit? 

Mr. Cornwell. No, sir. 

Mr. Brosius. If the present Treasury deficit was converted into a 
Treasury surplus, would not the difficulty cease at once, or to a large 
extent ? 

Mr. Cornwell. It would cease until the tide was turned again, and 
then the drain would go on once more. 

Mr. Brosius. Tell me why you think that the existence of the green- 
backs and Treasury notes to the extent of $500,000,000 is incompatible 
with an elastic system of bank currency. 

Mr. Cornwell. I do not think it has anything to do with the 
elasticity directly. 

Mr. Brosius. You have said that the only respect in Avhich our 
banking system lacks practical perfection is the quality of elasticity. 

Mr. Cornwell. I am talking now about the national-bank system ; 
yes. 

Mr. Brosius. I am speaking of that, too. 

Mr. Cornwell. I did not know but that you included all Govern- 
ment banking. 

Mr. Brosius. And you think that the only respect in which it lacks 
practical perfection is in the quality of elasticity? 

Mr. Cornwell. Yes. 



NATIONAL CURRENCY AND BANKING SYSTEM. 185 

Mr. Brosius. That consists in having notes at all times ready to pay 
out when there is a demand for them, does it not? 

Mr. Corn well. When there is a legitimate demand by commerce. 

Mr. Brosius. Exactly; that is the demand I refer to. 

Mr. Corn well. And further than that, that they must retire when 
that demand ceases. 

Mr. Brosius. Would they not do that anyhow? 

Mr. Cornwell. Not anyhow. They do not do it now. 

Mr. Brosius. Let me direct your attention to the fact that at the 
time of the recent stringency, or at least in the early portion of that 
stringency, the national banks did not issue notes to within something 
over $7,000,000 of the limit of their right to issue them. Why did 
they not do that? 

Mr. Cornwell. Because there was no profit in it. 

Mr. Brosius. This $7,000,000 would have cost them nothing. Why 
did they not take them out and use them if there was a demand for 
them? I am directing your attention to the fact (although I did not 
state it) that you have already intimated that if the bank currency 
was issued against the credit of the banks it would cost the banks 
nothing. They could keep the notes idle when they were not in 
demand and have them ready to issue to meet an increased demand 
when it should arise. I understand from you, as well as others, that the 
difficulty now is that the notes secured by Government bonds are so 
expensive that the banks can not afford to keep them ready for use 
when an increased demand arises. Am I stating it correctly? 

Mr. Cornwell. The inducement to issue bank notes is the induce- 
ment of profit. 

Mr. Brosius. After you have deposited a certain amount of Govern- 
ment bonds you are entitled to an issue of 90 per cent of currency. 
And yet during the stringency of 1893 the national banks did not issue 
within seven millions of the amount which they were entitled to draw 
on their bonds, an amount of currency which would have cost them 
nothing at all. Now, if they would not issue these notes when it cost 
them nothing, what reasons have you for stating that they would issue 
notes under the same circumstances if they were issued against the 
credit of the bank, because in both cases they were equally inexpensive? 

Mr. Cornwell. I do not know about that seven millions; but will 
you tell me why they did not? 

Mr. Brosius. I have given my views on that question on another 
occasion, but the committee does not care to hear me under these cir- 
cumstances on that subject. 

Mr. Cornwell. Have you any statistics on that point? 

Mr. Brosius. I think that the fact is shown in numerous forms. I 
do not think that any gentleman acquainted with the history of 1893 
will question my statement. 

The chairman remarked that the matter under discussion was not 
one brought up by the witness himself, and that therefore it should not 
be continued further. 

Mr. Cornwell. I recognize the questions of Mr. Brosius as being 
simply in the direction of gaining information, but I would like to ask 
him whether the nonissue of $7,000,000 was not due to the same reason 
that the $32,000,000, which have been asked for by the banks, were not 
issued, because the notes were not ready and printed in the Depart- 
ment? 

Mr. Brosius. That may be so, but will you have the kindness to 
answer this inquiry, Why did not the banks, being sensible of the 



186 NATIONAL CURRENCY AND BANKING SYSTEM. 

situation at the time, have these seven millions of notes in their vaults 
ready for use? Was the default in the Government or in the banks?* 

Mr. Ooenwell. The condition of the issue of national-bank notes has 
been such a water-logged sort of an affair for so many years that I have 
no doubt that the banks thought that there could be no relief from that, 
and instead of seeking that relief they ^ot out clearing-house certifi- 
cates, which they could use instantly. They issued these and saved 
the country. 

Mr. Brosius. Do you conceive it possible to devise a banking system 
for the United States that will combine the four elemeuts you have 
named — safety, uniformity, convertibility, and elasticity — by any means 
that will enable the banks themselves (each bank "for itself and not 
jointly for all) to provide collaterals to protect the Government against 
its ultimate liability to the note holders for the redemption of the notes'? 

Mr. Coenwell. I do not believe there can be any elasticity of cur- 
rency which has for its basis special security of any kind whatever. 
The basis of all elasticity is a general security against the general assets 
of the bank. With special security there can be no elasticity, and the 
reason of that is that there must be two forces operating as to elas- 
ticity — one force to throw the notes out (to circulate them) and the 
other force to retire them when they are not needed. With a special 
security circulation the notes will go out when there is profit in their 
issue, and they will disappear when there is no profit. Under a general 
security the notes will go out when the community needs them and 
when the banks can push them out, but they will come back when that 
demand ceases. 

Mr. Brosius. That is all very true; but it is not on the point of my 
inquiry. Do you mean that statement to be a negative answer to my 
inquiry — that you can not establish a banking system in the United 
States which will combine the four elements, safety, uniformity, con- 
vertibility, and elasticity, and at the same time to require each bank 
to furnish collaterals to protect the Government against its liability to 
the note holders ? 

Mr. Oornwell. Kindly tell me what you mean by collaterals? 

Mr. Brosius. Any kind of security — money, greenbacks, stocks, or 
bonds. 

Mr. Corn well. Do you mean a pledge oi . _.: .oral assets or a geueral 
guarantee by the officers of the bank ? 

Mr. Brosius. T mean a guarantee by the bank. 

Mr. Oornwell. You can not have this kind of a system by a pledge 
of special security, if you mean that? 

Mr. Brosius. I do. Then, it is not possible to devise a banking 
system in which the security for the circulating notes will be dollar for 
dollar ? 

Mr. Oornwell. JSTo; not an elastic system. 

Mr. Walker. Do you think it possible for a Government to issue 
the currency of the people under any system that will be elastic — that 
is to say, that the currency can be had when opportunity demands it 
and go back automatically when it is not needed? 

Mr. Oornwell. No, sir. 

Mr. Walker. You are aware of the fact that there is no gold now 
being paid into the Treasury and has not been for quite a loug time, it 
having come to that point that the people, being suspicious of the cur- 
rency and of the financial system, have ceased to pay duties in gold; do 
you think that if it should develop that the receipts of the Government 
exceed the expenditures that habit would be changed and gold would 
be paid in? 



NATIONAL CURRENCY AND BANKING SYSTEM. 187 

Mr. Cornwell. It might gradually have that effect; but it would 
not be permanent. It would be simply temporary as it has been here- 
tofore. 

Mr. Walker. Would they not continue to pay the customs in Treas- 
ury notes and greenbacks'? In other words, would not the Treasury 
still have to sell bonds for gold! 

Mr. Cornwell. Yes ; for quite a while. 

Mr. Walker. For two or three years'? 

Mr. Cornwell. Probably. 

Mr. Walker. Is it not a fact that the very pressing necessity now, 
and the thing which is essential to affect the financial condition of 
the country (which this committee is interested in), is that something 
shall be done to retire the greenbacks either absolutely or so that the 
Treasury will not be called upon for their redemption 1 ? 

Mr. Cornwell. Yes; that is very thoroughly my opinion. 

Mr. Walker. Can you tell us of any other system than that in the 
United States where banks are required to furnish bonds to secure 
their circulation? 

Mr. Cornwell. I do not know of any now. 

Mr. Walker. Is it not the opinion of bankers that bonds have no 
place in the currency system"? 

Mr. Cornwell. Yes; I think that has been demonstrated. 

Mr. Walker. You have said that the Baltimore plan goes far enough 
for the present. You have said that several times, have you not? 

Mr. Cornwell. Yes. 

Mr. Walker. But the American bankers who met at Baltimore took 
no cognizance of the financial condition of the country, but simply of 
the questions of the banks issuing currency. 

Mr. Cornwell. Yes; I think that is all they covered. 

Mr. Walker. That is, their own collective interest in the money — 
to make money out of the circulation? 

Mr. Cornwell. No; I do not think it was with reference to the 
profits of the banks at all. I do not think that was the stimulating 
motive with any of the bankers who considered the question. Their 
motive was to get the system into the best possible shape for the people. 
I consider the profits which a bank makes on its currency a very small 
part of its business. The use which a bank is to the business men and 
to the community is the most important part of its whole business. 

Mr. Walker. We understand that the banks are a part of the inter- 
national and individual exchanges, and as much a part of trade and 
transportation as railways; but my point is this : You do not claim that 
the Baltimore meeting took the financial condition of the country and 
of the United States Treasury into consideration in any way in this 
plan. Will you point out anything in the Baltimore plan which indi- 
cates that the bankers there took into consideration the financial con- 
dition of the country? 

Mr. Cornwell. It is not involved in the section that I read, but I 
think the intention was to make it possible to retire the greenbacks 
without contraction. 

Mr. Walker. That does not appear in the plan? 

Mr. Cornwell. If you retire the greenbacks without providing 
something else in lieu of them you cause contraction. 

Mr. Walker. Can you point out anything in the Baltimore plan 
which squints at the retirement of greenbacks? 

Mr. Cornwell. No; there is nothing of that kind there, but Mr. 
White has a proposition of that kind. 



188 NATIONAL CURRENCY AND BANKING SYSTEM 






Mr. Walker. Mr. White was acting for himself. 

Mr. Cornwell. My plan involves first the retirement of the green- 
backs and then the adoption of the Baltimore plan. 

Mr. Walker, isa legislator, you being a legislator, and feeling 
that something must be done to retire these greenbacks, and that Con- 
gress can not be brought to enact a bill that will, do you not think 
that it is the duty of those responsible for legislation to find some 
way to prevent their being presented at the Treasury to drain gold? 
Do you not think that the first step? 

Mr. Oornwell, I am tired of compromise. I suppose it is a hard 
thing to get around, but I think we ought to find out what the right 
thing is and fight for it. 

Mr. Walker. But in the meantime if you were drowning you would 
not fight for a priuciple, but would fight to save your life. Now, the 
financial condition of the country is such that if anything can be devised 
to prevent greenbacks being constantly presented for redemption, do 
you not think it ought to be done? 

Mr. Oornwell. It is a question whether it is not time to face this 
thing. 

Mr. Walker. You are begging my question. I agree that it is 
always time to face things, and I am quite apt to do so. But here is a 
condition where the people will not be faced down or back, according to 
your ideas. Now, if it can be made to the interest of the banks to take 
out more currency by changing the present system and by the banks 
assuming the current redemption of the greenbacks proportionately, do 
you not think that that ought to be done? 

Mr. Oornwell. In other words, the question is whether we shall 
continue to borrow money to buy gold. I think I would keep on bor- 
rowing gold. 

Mr. Walker. That is to say, we would finally get out of the trouble 
quicker to let the disease go on until it can be wholly cured ? 

Mr. Oornwell. I think so. 

Mr. Walker. Will you not tell us whether the Carlisle plan, in any 
financial or economic sense, retires the greenbacks? 

Mr. Oornwell. I do not think it does. It puts them into the Treas- 
ury to the extent of 30 per cent of the bank circulation taken out. 

Mr. Walker. Is it understood in the parlance of finance that putting 
a thing up for security retires it? 

Mr. Oornwell. No, sir. 

Mr. Walker. Then, you do not think that this plan in any sense 
retires the greenbacks? 

Mr. Oornwell. No, sir. 

Mr. Walker. Tell us how, in your opinion of the Baltimore plan, 
you can get any money whatever into circulation when we already have 
$1,200,000,000, and it is being stored in the banks, showing that there 
is no demand for money, and that the banks do not know what to do 
with the money they have? How could the Baltimore plan operate 
provided it was enacted into law? 

Mr. Oornwell. Of course a plan of currency operates only as the 
trade requires it. 

Mr. Walker. Then, you admit that it is simply 

Mr. Oornwell. Simply getting ready for the future- 
Mr. Walker. And would have no immediate effect? 

Mr. Oornwell. No immediate effect, probably. I do not think we 
need any immediate effect with bank notes, except to retire some or 
to replace legal tenders if they are retired. 

Mr. Walker. So that really the Baltimore plan (which you have 



NATIONAL CURRENCY AND BANKING SYSTEM. 189 

said, and others have said repeatedly, is all that need be done for the 
present) would have no effect whatever for the present. You do not 
want to assume that position ? 

Mr. Cornwell. My statement was begun with the first and most 
important declaration ; first, retire the Government legal-tender notes 
whether you adopt the Baltimore plan or any other plan, or leave the 
thing as it is; second, adopt the Baltimore plan in order to provide 
bank notes to take the place of the legal tenders. 

Mr. Walker. Then, your Baltimore plan was prepared as a second- 
ary step? 

Mr. Oornwell. The Baltimore plan provided that the banks would 
do their part in the matter while the Government got ready to do its 
part. 

Mr. Walker. That was something to take effect in the future, not 
in the present. 

Mr. Oornwell. After the Government had done its part. 

Mr. Walker. You have intimated that the business of banking, as 
it is conducted under the State system, would divide up the business 
of the supervision of the banks, including the detection of counter- 
feiting, into 44 pieces, each one being so small that it could not aft'ord 
to maintain an effective supervision and protection against counter- 
feiting. 

Mr. Oornwell. I did not say exactly "being so small." My idea is 
this: There are 44 different supervisions of State banks, while the 
effective supervision of counterfeiting is brought about by one super- 
vision — the secret service of the United States. Now to get these 44 
supervisions together under one system, in order to eliminate counter- 
feiting, would be a very difficult thing. We are trying to do it in the 
State bank association of New York. We are tr} T ing to join with other 
State associations to establish, a detective bureau to operate all over 
the United States to keep out fraud, but it is going to be a difficult 
thing to do, and it will take a long time to do it. 

Mr. Walker. You have said that you think the $5 limitation for 
bank notes would be better than the $10 limitation. Why have a $5 
limitation? For what purpose? Why should not the limit be $1 or 
$2? Is the sole and only reason for a $5 limit the fact that we have 
silver, and that the Government should provide for its use? 

Mr. Oornwell. Yes, sir; that is the only reason. 

Mr. Walker. If we had no forced silver coinage you would not be 
for a $5 limit? 

Mr. Oornwell. Not necessarily, as a matter of convenience. I think, 
however, that silver should be circulated now — in a subsidiary way. 

Mr. Johnson, of Ohio. What effect, in your judgment, would it have 
on the price of gold if the Government were to redeem the greenbacks 
and Treasury notes in silver coin? 

Mr. Oornwell. You mean what premium gold would go to? 

Mr. Johnson, of Ohio. Would it go to a premium? 

Mr. Oornwell. I would not dare to say to what premium it would 

go- 

Mr. Johnson, of Ohio. You think it would go to a premium? 

Mr. Oornwell. Oh, certainly; at once. 

Mr. Johnson, of Ohio. In the national-bank currency contemplated, 
I believe that the redemption of it by the banks is to be in lawful 
money? 

Mr. Oornwell. Yes. 



190 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Ohio. And that gives the banks an option of pay- 
ing it in silver? 

Mr. Cornwell. Yes. 

Mr. Johnson, of Ohio. And if the banks paid these notes in silver, 
would not that have the same effect and force gold to a premium? 

Mr. Coenwell. I do not think so. 

Mr. Johnson, of Ohio. You think that if the Government paid its 
notes in silver, gold would go to a premium, but that if the banks paid 
their notes in silver, gold would go to a premium ? 

Mr. Oornwell. I think it would not. 

Mr. Johnson, of Ohio. Why? 

Mr. Oornwell. Because we are on a gold basis? 

Mr. Johnson, of Ohio. Do you think that that quite answers the 
question? You say that in the one case gold would go to a premium? 

Mr. Oornwell. It would be sure to do so. 

Mr. Johnson, of Ohio. But you say that if the banks should exercise 
the option which some people claim the Government has, and pay their 
notes in silver, gold would not in that case go to a premium. 

Mr. Oornwell. The currency of the country is at this time on a 
gold standard. If there were no demand for gold at the Treasury the 
gold would certainly remain there. 

Mr. Johnson, of Ohio. But it is the difference in the two conditions 
which I wish you to explain. 

Mr. Oornwell. The difference is that the action of the Government 
in paying its notes in silver would establish a silver standard at once. 

Mr. Johnson, of Ohio. And the same action by the banks would 
not? 

Mr. Oornwell. It would not. 

Mr. Walker. Because the Government is the final redeemer? 

Mr. Oornwell. Yes. 

Mr. Johnson, of Ohio. The banks that exercised the privilege of 
redeeming bank notes in lawful money and redeemed them in silver, 
would they not force their notes to a discount as compared with gold? 

Mr. Oornwell. The exercise of the option would not have that effect, 
but if they insisted upon paying out silver when the note holder 
demanded gold their notes would be disliked in the community and 
would go to a discount. 

Mr. Johnson, of Ohio. You think that if that were done by the 
banks it would have no effect on gold? 

Mr. Oornwell. It would have no effect whatever. The final redemp- 
tion is by the Government. 

Mr. Johnson, of Ohio. But not of the national-bank notes. They 
are supposed to be paid by the banks. Now, if a bank is presented 
with its own notes and exercises the right to redeem them in silver, 
you say that that will not force gold to a premium nor force the notes 
to a discount? 

Mr. Oornwell. No; because the Government is the agent of final 
redemption, and it is the declared intention of the Government to 
maintain the two metals on a parity. 

Mr. Johnson, of Ohio. Then it is because silver is maintained on a 
parity with gold that the banks can exercise that privilege? 

Mr. Oornwell. Yes; if it were not they could not. 

Mr. Sperry. Do you know whether the banks that have failed 
recently in Newfoundland were under the Canadian system, or were 
they provincial banks? 

Mr. Oornwell. I think they were under the Canadian system. I 
am not sure about that. 



NATIONAL CURRENCY AND BANKING SYSTEM. 191 

Mr. Black. It seems to be assumed by all of these gentlemen that if 
State banks of issue were allowed there would be forty-four different 
systems; does that follow ? 

Mr. Coenwell. It seems to me that, if they are under the supervi- 
sion of the various State legislatures, it does. 

Mr. Black. It does not follow that you would have, but that you 
could have. 

Mr. Oornwell. But still there are State banks in each one of the 
forty-four States. 

Mr. Hall. No, sir; there are not. 

Mr. Black. Is it not true that in a great many States such banks 
are prohibited by provisions of the State constitution? 

Mr. Oornwell. Yes; the number 44 was used inadvertently. 

Mr. Hall. I think that you treated the Secretary's bill unjustly 
when you said that there was no provision in it for retiring greenbacks 
under any circumstances. Bead section 9 again and see. 

Mr. Cornwell. I think I stated, in the early part of the interview, 
that their retirement was optional with the Secretary. He may pro- 
vide for their retirement if he feels like it. 

Mr. Johnson, of Indiana. It is claimed that there are certain seasons 
of the year — the crop-moving seasons — when in the sparsely- settled and 
agricultural parts of the country currency is scarce and high. What 
is your opinion as to the cause of it, and can there be a remedy devised 
for it? If so, what remedy would you suggest? 

Mr. Cornwell. The United States and Canada are the two coun- 
tries that are subject to a squeeze in the fall. That is a reason why 
we want an elastic currency. The cause of the squeeze is the very 
large harvestry of crops at that time of the year. There is such a 
demand for money all at once to move crops that Canada demands 
for that purpose quite 20 per cent of its whole circulation. The banks 
of Canada respond to that demand immediately. Not so in the 
United States, there being no elasticity in the currency, which is 
owing to the fact that currency is based on a bond security. On that 
account the rates for money are high, very high sometimes. 

Mr. Johnson, of Indiana. Is it your opinion that an elastic currency, 
such as suggested by you here, would remedy this disadvantage and 
enable those sections of the country to get money at reasonable rates 
of interest in crop-moving time? 

Mr. Cornwell. Without any doubt whatever. 

Mr. Johnson, of Indiana. What benefit could the people in those 
various States have from the State-bank system of currency which 
they could not just as well receive from a national system of currency 
properly devised? 

Mr. Oornwell. None whatever, in my opinion. 

STATEMENT OF MR. WILLIAM DODSWORTH. 

The chairman stated that Mr. Dodsworth, editor of the Journal of 
Commerce, had been invited and was now present; and he called on Mr. 
Dodsworth to present his views to the committee. 
Mr. Dodsworth thereupon addressed the committee. He said: 
Mr. Chairman and gentlemen: In what I may respectfully submit 
relating to the question now occupying the attention of your committee 
I shall, for brevity's sake, take it as granted by the preponderant sen- 
timent of the country, and therefore needing for legislative purposes no 
demonstration, that the present currency arrangements of the United 
States are radically defective. 



192 NATIONAL CURRENCY AND BANKING SYSTEM. 



In respect to our live hundred millions of full legal-tender paper 1 
shall assume that it is derived from an illegitimate exercise of the 
legislative power of the Government; that it is inadequately guaran- 
teed, inasmuch as it rests solely on the Federal power to tax or to bor- 
row, and not on an equivalent of pledged assets ; that it stands directly 
exposed to fluctuations in purchasing power, arising from political 
catastrophes or from fiscal emergencies; that its issue was governed 
mainly by necessities of war finance and not by sound economic laws; 
that its volume is entirely irresponsive to the fluctuating requirements 
of business, and that it has at last become tainted with distrust for 
which reasons it is lacking in the first essentials of a really sound and 
efficient form of currency. 

In respect to silver money I assume that, though the policy of 
increasing or diminishing its volume is still a seething question, yet it 
does not specifically concern the problem immediately before your com- 
mittee. 

As to the system of note issues provided under the national banking 
laws, I shall take it for granted — as I think I safely may — that among 
economists, practical bankers, and intelligent students of monetary 
questions it is the largely preponderant conviction that the system has 
outlived any adaptation it may have originally possessed for satisfying 
the currency wants of the country, the main grounds for that conclusion 
being, — 

(1) That the bond form of guarantee has been found incompatible 
with elasticity of issue. 

(2) That said guarantee leaves no sufficient margin of profit to the 
issuer, and consequently prevents issuing. 

(3) That the bonds themselves must, in a few years, mature and be 
retired. 

(4) That the Government's engagement to pay the notes is an ille- 
gitimate exercise of Federal power. 

(5) That, owing to obstructive restraints, the volume of notes can 
not be readily augmented to meet public emergencies. 

(6) That the arrangements for insuring current redemptions of the 
notes fail of their purpose, thereby keeping the volume rigidly inflexi- 
ble at the seasons when it should automatically contract or expand; 
and 

(7) That, for these reasons, the national-bank circulation has shrunk 
to one-half its former volume, while the public requirements for money 
have been increasing. 

I take it that the very general agreement of intelligent public opinion 
on these assumed propositions constitutes the occasion for this legis- 
lative inquest, and with your permission, therefore, I will confine my 
attention to the inquiry — how our bank currency system may best be 
placed upon a sounder basis, and how equipped with more elastic and 
automatic adaptations for satisfying the ever-increasing and yet ever- 
oscillating wants of the country. 

In dealing with this question, it is manifestly desirable to adopt a 
course least calculated to disturb existing banking arrangements that 
need no change; and, with that purpose in view, it may be deemed 
proper to enact the new conditions relating to note issues in the form 
of amendments to the national-banking act. At the same time, upon 
every ground of right and equity, the power of issuing notes should 
be conceded to the banks operating under State laws, conditioned 
only upon the stipulation that they shall conform in all respects to the 
terms of issue imposed upon the national banks, thereby securing from 



>.r 1 



NATIONAL CURRENCY AND BANKING SYSTEM. 193 

all banks a uniform circulation. Any course short of this would, I 
conceive, be not only a political injustice, but an unwarrantable dis- 
crimination against a class*of banks in every way deserving the privi- 
lege, and upon whose operations the business interests of the country 
are largely dependent. 

As nearly as may be estimated in the absence of complete official 
data, the State banks of the United States have a total capital of about 
$275,000,000, and are the custodians of $750,000,000 of the people's 
deposits. Their capital bears a ratio of 30 per cent to their lpans, 
while in the case of the national banks the proportion is only 33 per 
cent. Their ratio of capital to deposits is 37 per cent, which is identi- 
cal with that of the national institutions. In 1892 their cash resources 
were in the ratio of 20 per cent of their deposits, while the nationals 
showed 19 per cent. Upon the true tests of relative strength and of 
soundness of methods, it is thus evident that the State banks have a 
slight advantage over the national. 

The magnitude and solidity of this interest demand that it shall be 
denied no privilege conceded to any other class of banks. Thirty years 
of deprivation of the right of issue should suffice, and emancipation 
from the bonds of a prohibitory tax is surely now due. There is also a 
weighty practical reason for the recognition of this right. Li' the privi- 
lege of issue is withheld from this class of banks, the people are thereby 
deprived of the large benefits that would accrue to them from the use 
of their notes. Exclusion would not only be odious, as establishing a 
monopoly of an important function, but equally a wrong and an injury 
to the country at large, as an arbitrary restriction upon the needful 
supply of currency. 

It seems incredible that the country would ever become reconciled 
to an exclusion of banking rights that would curtail the issuing ability 
of the banks to the extent of probably over $200,000,000, and ultimately 
more than that sum. The true principle to be followed in this branch 
of the question, I would therefore submit, is: The same rights, upon 
the same terms, to both classes of incorporated banks. 

The present geographical distribution of the State banks deserves 
some consideration in determining this question, if equity toward all 
sections is to be maintained. In the New England and Middle States 
combined the amount of State bank capital is only 20 per cent of the 
total for the United States, while those States own about 54 per cent 
of the entire national bank capital. The distribution of the remaining 
SO per cent of State bank capital is: In the Southern States 20 per cent; 
in the Western States 37 per cent ; and in the Pacific States 23.7 per cent. 
Could it be considered just to deprive the South, the West, and the 
Pacific coast, which depend so largely upon State banks, of the valu- 
able rights of issue so liberally vouchsafed to other sections"? 

In determining the maximum of circulation to be permitted to each 
bank, the safest and most equitable method seems to be that of estab- 
lishing a uniform ratio as between the permissible amount of issues and 
the unimpaired paid-up capital, or the paid-up capital and surplus com- 
bined. The latter of these alternative standards has some important 
advantages over the former; inasmuch as it better represents the real 
resources of the bank; and, in the event of an impairment of surplus, 
would involve a curtailment of the permissible circulation. To that 
extent, the capital and surplus combined would be a more conservative 
measure of issue than the amount of capital alone. 

In fixing the maximum of issue, it is important to keep in view the 
fact that from motives of prudence and reputation, banks of issue ordi- 
nat cur, 13 



194 NATIONAL CURRENCY AND BANKING SYSTEM. 

narily keep tlieir circulation materially within the authorized limit, 
whether that limit may be high or low. The maximum, therefore, should 
not be adjusted to what may be supposed tp be a normal experience or 
a normal requirement, but should allow a somewhat liberal margin for 
expansion of volume in periods of uuusual business activity, or under 
the accidental emergencies to which business is always liable. My 
individual judgment would be that a limit Tequiyalent to 75 per cent of 
the capital of the bank would be entirely safe; and in this I am con- 
firmed by the almost uniform opinion of many practical bankers with 
whom I have consulted on the matter. 

As the present capital of the national banks is, in round numbers, 
$700,000,000, and that of the State banks may be estimated at about 
$275,000,000, this ratio would permit a maximum issue by the national 
and State banks of, say, $730,000,000 of notes. Were the capital and 
surplus combined to be chosen as the standard, the ratio might be 
reduced. In such case, as the combined capital and surplus of the 
national and State banks amount to about $1,410,000,000, a ratio of 50 
per cent would afford an issuing capacity nearly equal to 75 per cent on 
capital alone. These estimates of the possible issue of new notes pre- 
suppose the retirement of some $200,000,000 of now existing national- 
bank notes, so that the net possible increase of note circulation (upon 
the present amount of national and State bank capital) would be 
$330,000,000. The actual increase might and probably would be a very 
different matter. 

Should no steps be taken for retiring the outstanding Government 
notes, this capacity of issue might easily exceed the existing require- 
ments of business. How far that might tend to induce an unhealthy 
inflation of the circulating medium would depend almost entirely upon 
the nature of the provision made for the redemption of the notes. 
Under such arrangements as are provided by the existing Treasury 
redemption agency such a result would inevitably follow ; for that 
system obstructs, more than facilitates, redemptions. But with such 
provisions for enforcing redemption as might be devised, to which I shall 
later refer, no serious inflation need be feared. If, however, Congress 
should decree the withdrawal of the five hundred millions of Treasury 
paper, the new supply of bank notes would be none too much to fill 
the vacuum • and for such increases of currency as might be called for 
by the growth of population and trade, we should have to depend 
upon an expansion of banking capital, which, with the inducements 
arising from the profits on the new circulation, would doubtless be 
forthcoming. 

Assuming the withdrawal of the bond form of guarantee against 
circulation, the question arises, What other form of protection of the 
notes should be provided f There seems to be but one really eligible 
substitute, namely, to constitute the notes a first lien upon the entire 
assets of the bank, and also upon the liability of the stockholders to 
assessment up to the full amount of their capital stock. There can be 
no possible question about the sufficiency of such a guarantee ; the 
doubt would rather be whether it Avould not be largely excessive. 
Assuming the improbability that the failed bank had outstanding an 
amount of notes equal to the suggested maximum, namely, 75 per cent 
of capital, even then the guarantee afforded by the shareholder alone 
would exceed by one-third the amount payable to the note holders, and 
the assets of the bank would be so much further surplus over the note 
liabilities. 

With the combined guarantee from assets and stockholders, the pro- 



NATIONAL CURRENCY AND BANKING SYSTEM. 195 

tection would be much, more ample than that afforded by the existing 
deposit of bonds ; the only difference being that, under the new method, 
the notes might not be redeemed with the same degree of promptness 
as they are under the now existing arrangements. Considering, how- 
ever, that there could be no question about the ultimate full payment 
of the notes, there would be no reason why they should not continue 
to circulate until the holders were notified by the receiver to present 
them for redemption. 

This amplitude of guarantee is suggested not because there would be 
any commensurate risk attending the notes, but because the public are 
excessively sensitive about the safety of bank currency, and it is nec- 
essary to guard against all possibility of such distrust by providing a 
protection which makes depreciation of the notes impossible. The 
guarantors need not object to the excess of guarantee, for it does not 
affect the amount of their actual liability, which really is, on the whole, 
a very small affair. During the unprecedented bank panic of last year, 
the failures of national banks represented only four- tenths of 1 per 
cent of the entire capital of those institutions. The experience of the 
national banks affords data from which the risks on bank circulation 
may be fairly estimated. 

For the last thirty years, covering two great panics and two minor 
ones, the amount of the capital of banks which went into the hands of 
receivers averaged $1,463,000 per year. The average amount of the cap- 
ital of all the national banks during that period was about $400,000,000. 
The proportion of the capital on which failures occurred to the total 
capital of all the banks was therefore a little over one-third of 1 per 
cent. There is no apparent reason why this ratio should not be main- 
tained in the future. Upon the present $1,000,000,000 of national and 
State capital, the yearly failures might, according to this rule of experi- 
ence, be expected to cover about $3,600,000 of capital. 

Assuming that the banks were permitted to issue notes to the extent 
of 75 per cent of their capital, but kept out only 60 per cent — which I 
take to be a reasonable estimate — we should then have an annual crop 
of about $2,160,000 of insolvent notes, which would be equivalent to 
a fraction over one-fifth of 1 per cent of the whole banking capital. 
Against this would stand a total of $4,240,000,000 of bank assets and a 
stockholders' pledge of $1 ,0^0,000,000, in all $5,240,000,000, upon which 
the note holders would have a first lien. It therefore hardly seems 
necessary that either stockholders, depositors, or note holders should 
feel any serious concern about the risks attending note issues, or the 
nature or sufficiency of this proposed guarantee. If stockholders or 
depositors should desire to protect themselves against the guarantee 
given to the note holders, it would probably be found that the risk 
could be covered, from year to year, for a surprisingly small considera- 
tion. 

Notwithstanding, there are those who think the entire assets and 
the duplicate liability of stockholders an insufficient protection, and 
suggest that, in addition, the issuing banks shall deposit legal tenders 
with the Treasury, to the amount of 30 per cent of their outstanding 
notes, and that a " safety fund," equal to 5 per cent of the circulation, 
shall be placed in the custody of the Treasury. As already shown, the 
30 per cent deposit certainly could not be defended on the ground of 
guarantee necessities. What other purposes may have been contem- 
plated in the proposal have not been explained. It has, however, this 
very serious objection, that for each million of expansion of note issues 
it necessitates a contraction of $300,000 in another form of currency. 



196 NATIONAL CUERENCY AND BANKING SYSTEM. 

If it be supposed that this proposal is intended to indirectly effect 
the withdrawal of Government notes from circulation, it would seem to 
be a sufficient answer that a more certain way of getting rid of that 
monetary excrescence would be to repeal the legal-tender act and to 
provide for the final liquidation of the notes, with such speed as may 
not disturb the monetary equilibrium. At this point may I be permit- 
ted to express my approval, in principal, of the provisions suggested 
for the retirement of the Treasury notes in section^ of Secretary Car- 
lisle's form of bill submitted to your committee'? Considering the 
supreme necessity for the action contemplated, it would seem urgent, 
however, that the provisions be made mandatory, rather than depen- 
dent upon the uncertain discretion of the Secretary of the Treasury. 

I would also suggest, in connection with this clause of the bill, that, 
when there is no surplus revenue devotable to the redemption, the Sec- 
retary of the Treasury shall be required to borrow on low-rate bonds, 
payable at the pleasure of the Government, an amount sufficient to 
provide for the note liquidations required under said section 9. Also, 
there seems to be some material incompatibility between the Secre- 
tary's proposal to retire the legal tenders and his further proposition 
that those notes shall be permanently deposited against bank-note 
issues to the amount of 30 per cent of the bank notes outstanding. 
For if the legal tenders are to be finally retired, what becomes of those 
deposited against bank circulation? That deposit fund would then be 
extinguished. 

On the other hand, if the notes deposited against circulation are not 
to be withdrawn, then nearly two hundred millions of the Treasury 
notes might remain in existence for an indefinite and possibly very long 
period. In any event, a point would be reached in the process of retir- 
ing United States notes when, from lack of supply, the 30 per cent 
deposit could be no longer complied with, owing to the lack of legal 
tenders, and further issues by the banks would then be barred. Under 
these circumstances, as well as for other reasons, I would suggest that 
the 30 per cent deposit could be well dispensed with. 

The suggested 5 per cent " safety fund" seems to lack any real occa- 
sion, except that it would provide a resource out of which the notes of a 
failed bank could be immediately redeemed, instead of waiting until 
the receiver had realized sufficient funds to liquidate the circulation. 
As a means for that object it seems to merit favorable consideration. 
The suggestion that this fund be accumulated through moderate peri- 
odic contributions also seems entirely unobjectionable. 

I trust it may not be deemed obtrusive, on this occasion, to briefly 
consider the proposal of the Secretary of the Treasury that "all pro- 
visions of law requiring banks to keep a reserve on account of deposits" 
be repealed. It is undeniably true that the national banks usually 
keep a handsome surplus of reserve above the legal minimum, and this 
applies especially to the country banks, on which the law imposes a 
very light ratio of cash reserve; and this course being voluntary and 
the result of a conservative spirit, it carries a large measure of war- 
rant that the banks may be safely trusted to regulate their reserves 
according to their own judgment. 

It is equally true that, when the banks are pressed by emergencies, 
they have more respect for their own interests and those of their cus- 
tomers than for the mandate of the law, and therefore do not hesitate 
to disregard the statute and its penalties, which means that in prac- 
tice the reserve law fails of its purpose. And it is further true that 
at the banking centers, pending critical conditions, the legal limitation 



NATIONAL CURRENCY AND BANKING SYSTEM. 197 

of the reserve stands out as the " dead line," beyond which lies con- 
fusion and panic. The natural reluctance of the banks to cross the 
line until the last moment causes a contraction of loans, which intensi- 
fies distrust and increases the pressure for accommodation, and the 
result is that when the banks have resolved to disregard the law the 
crisis is found to have passed beyond their control, and apprehension 
is consummated in pauic. 

There can be no question that, while ail our panics have been seri- 
ously aggravated through the operation of a compulsory reserve, some 
might have been wholly averted hail the banks been free to use their 
lawful money resources according to their individual discretion. In 
theory, the' legal regulation is designed to protect the banks; in prac- 
tice, it imperils both them and their customers. It is difficult to specify 
any advantages accruing from this restriction that at all offset these 
serious disadvantages. There might be some reasonable justification 
of necessity if the banks were recklessly managed and regularly kept 
their reserves at a low point, but such is not the fact. 

There would be some apology for the law if the reserves were made 
available under emergencies; but, on the contrary, while holding the 
means of remedy, the relief is withheld under penalty of corporate 
death. Such incongruity would be ridiculous were it not so serious. 
~Nov would it much mend the matter, if discretion were given to the 
Secretary of the Treasury, or to the clearing houses, to relax the opera- 
tion of the law when necessity seemed to call for such elasticity. 
Experience shows that such discretions are never used until the dan- 
ger has gone well nigh beyond control; and the uncertain waiting for 
the intervention is one of the most demoralizing forms of suspense. 

I can therefore regard the legal regulation of bank reserves against 
deposits only as an effete remnant of methods adapted for times when 
bank management wasless intelligent and less conservative than in these 
days. The principle is venerable for its antiquity, and, to minds living 
more in the past than in the present, it may seem shocking to abandon 
this highly prestiged retrain t; but, for myself, I can only conclude that 
the Secretary is as wise as he is courageous in urging the abolition of 
legal regulation of the reserves. 

To my view public opinion, and I may say banking opinion also, has 
so far greatly underrated the practical importance of redemption 
arrangements. The things dependent upon a redemption system are 
no less important than these: The regulation of the volume of notes; 
their natural and equitable geographical distribution; the checking of 
undue issues by any individual bank; the restraining of unhealthy 
expansions of banking operations; the prevention of unwholesome 
redundancies of currency; the checking of financial and commercial 
speculations resting purely upon a superabundance of money facilities. 

It is to be conceded that the propo ed enlargement of the freedom 
of issue might easily run into an excessive supply of circulation and an 
illegitimate expansion of bank credits. That possibility is so obvious 
that a measure which failed to provide protection against such a result 
would be radically defective, and after brief trial would bring upon 
itself the condemnation of the conservative sentiment of the country. 
The only safe means of preventing such a failure is to provide arrange- 
ments which would allow the utmost facilities of dispatch and economy 
for forwardiug the notes for redemption. In devising such arrange- 
ments it is important to keep in mind who are the parties to use them. 

The general public have no interest in redemptions, for they have 
no reason for desiring to change one form of money for another. The 



198 NATIONAL CURKENCY AND BANKING SYSTEM. 

redemption agency is purely a banker's institution. The notes now 
into the banks in the way of deposits, and it is to the interest of the 
bank receiving them to exchange them as soon as possible for "lawful 
money." In so doing, the bank makes the more room for paying out 
its own notes, and at the same time strengthens its own lawful money 
reserves. There is a constant competition between the banks to occupy 
the field of circulation, each one seeking to get out and keep out its 
own notes and using the redemption agency as a means of pushing 
into retirement the issues of its competitors. 

This competition is the truest possible regulator of a bank-note cir- 
culation. It permits expansion of the volume when an increase is 
needed; it compels contraction when the outstanding volume is exces- 
sive. Under such a machinery there can be neither scarcity nor redun- 
dance. The regulating force is the self-interest of each bank checked 
by that of all others. If the bank is suspected of matters affecting its 
credit, that fact operates as a special inducement for sending its notes 
for redemption ; and that discrimination puts its circulation under the 
severest regulation. It will thus be seen that the note clearing house, 
or redemption agency, becomes the very salt and conservation of a 
bank-note system, protecting the quality of the notes and assuring 
a healthy adjustment of their volume and their geographical dis- 
tribution . 

Not any or every form of agency, however, will insure these advan- 
tages. It is essential that the agency shall not be so far from the point 
of issue as to impose obstacles of time and expense in transmission. It 
is necessary that the charges for redemption service shall be nominal, 
and that the proceeds of the conversions be instantly remitted. None 
of these requisites are afforded by the existing redemption agency of the 
national banks. That institution has been a lamentable failure from the 
beginning; nor is there any possibility of so modifying it as to make it 
properly effective. Under that system the redemptions proper, exclud- 
ing those connected with failed banks, and banks withdrawing their cir- 
culation, and also those connected with worn out notes, appear to amount 
to about forty million a year for the whole United States, or one-fifth 
of the outstanding volume. 

What this amounts to, as compared with what is needed under a really 
healthy and competitive note system, may be inferred from the fact that 
in 1857 the Suffolk Bank of Boston, acting as redemption agent for the 
New England banks, effected $400,000,000 of redemptions; in other 
words, New England, with its financial dimensions of thirty-seven years 
ago, had tenfold the amount of redemptions now effected at Washington 
for the whole United States. That is the difference in results between 
an efficient and an inefficient redemption agency. The services of the 
Suffolk Bank were rendered at a cost of 10 cents per $1,000, while 
those of the national bureau cost 70 cents per $1,000. 

With such an immense geographical area as our banks cover, it is an 
absolute impossibility that any single institution could afford effective 
redemption service. If redemption is to constitute the live and ever- 
active regulator that the protection of a bank currency imperatively 
demands, the points of redemption must not be one, but many. Failing 
that, the redemptions must be few; there will be no elasticity of issues, 
and the banks will be tempted to use their privilege to the maximum 
limit, because they will be comparatively secure against the return of 
their notes for liquidation. 

With a view to keeping the agency near the point of issue, and 
thereby facilitating conversions, I would respectfully suggest that the 



NATIONAL CURRENCY AND BANKING SYSTEM. 199 

Washington agency be discontinued, and that in its place the law 
shall establish six redemption districts, and confer upon the Comptroller 
of the Currency authority to designate some one bank, situated at a 
point central to each district, which shall act as redeeming agent for 
all the banks in such district. Perhaps some such geographical 
determination of the respective districts as the following might be 
most equal and most convenient: 



Redemp- 
tion dis- 
tricts. 



No. 1 
No. 2 



No. 3 



Groups of States. 



New England States 

New York, New Jersey, Pennsylvania, Delaware, Maryland, District of 
Colnmbia. 

Southern States 

No. 4 Ohio, Indiana, Illinois, Michigan, Wisconsin, West Virginia 

No. 5 Iowa, Minnesota. Missouri, Kansas, Nebraska 

No. 6 Pacific States and other Western States and Territories 



Present 
capital. 



Total capital. 



$187, 000, 000 
197, 700, 000 

71,500,000 

124,500,000 

76, 500, 000 

41, 000, 000 



078, 200. 000 



Each of these divisions would include an amount of bank capital 
sufficient to warrant its having an agency of its own. Each of the 
agencies should be required to redeem not only notes issued within its 
district, but also any presented that may have been issued in some 
other district, recouping itself by forwarding such notes to the agency 
for the district in which they were issued. Such extra-limit redemp- 
tions, however, would probably be found unimportant in volume. 

The importance of redemption is so vital that it seems necessary that 
the arrangements for facilitating it should be made imperative by law, 
rather than left to the voluntary action of the banks. And, for the 
same reason, it would seem prudent that the choice of agents should be 
left to the Federal Comptroller, as a disinterested dispenser of a func- 
tion for which there might be troublesome competition, and which the 
banks have no organization to deal with. 

The Suffolk Bank system affords the best model for the form of organ- 
ization. It grew out of a banking necessity, and its development over 
a period of thirty years brought its machinery to a state of virtual per- 
fection. Following that precedent, each bank in a given district should 
be required to deposit with its redemption agency an amount of " law- 
ful money n equal to, say, 2 per cent of its outstanding circulation, and 
to keep that deposit at all times good. That deposit would, to a valu- 
able extent, afford to the agent bank a resource for loans; and the use 
of that resource would be a sufficient compensation for the services ren- 
dered by the agent. This was the basis of compensation ultimately 
reached by the Suffolk Bank, and it was found so remunerative as to 
bring out active competition for the service from other banks. 

Mr. Henderson. Are your suggestions intended to apply to State 
banks of issue as well as to the national banks? 

Mr. Dodsworth. They do contemplate providing for State bank 
issues as well as for national banks. 

Mr. Henderson. The question I want to ask you is whether you 
propose that the State banks of issue should be under national control 
in any way? 

Mr. Dodsworth. So far as respects the issue of their notes; and 
entirely so far as the issue of their notes is concerned I think that there 
should be no distinction whatever. 

Mr. Henderson. If they are to be under national control, why not 
have them as national banks instead of State banks ! 

Mr. Dodsworth. That is a question which I presume each bank 



200 NATIONAL CURRENCY AND BANKING SYSTEM. 

would have its own reasons for answering. I do not see that that is a 
question which Federal legislation should concern itself about. 

Mr. Henderson. Have you thought of the question as to how far (if 
we admit State banks of issue) the National Government would have 
any power or control over them, or would you admit them quite free 
from any Federal control in any way? 

Mr. Dodsworth. I scarcely understand your question. 

Mr. Henderson. Have you thought of the question whether (if you 
admit State banks of issue) there is any power under our form of gov- 
ernment for the General Government to exercise any supervision or 
control over them? 

Mr. Dodsworth. I conceive that if the General Government were to 
provide the conditions under which notes should be issued by State 
banks and should prescribe the limitations under which the issue should 
be operated (including inspection and all minor provisions for protec- 
tion) it will be simply a matter whether the banks now organized under 
State laws would undertake to conform to those conditions. They 
would probably rind it difficult, as a rule, at any rate at first, and I con- 
clude that as a consequence die legislatures of the several States would 
find themselves under the pressure of public opinion (especially of bank- 
ing opinion) to reconstruct their banking laws so as to include the very 
provisions which would be included in this proposed legislation as to 
national banks. 

Mr. Henderson. Do you not think it very desirable that whatever 
system of currency we may adopt it should be a uniform currency that 
would be receivable and pass current in all the States of the Union? 

Mr. Dodsworth. That would be most essential, and I conceive that 
under such an arrangement as that, every note being issued (whether by 
a State bank or a national bank) under the same conditions of current 
efficiency and redemption, they would be identical with each other. 

Mr. Henderson. You assume, then, that every one of the States that 
would legislate on the question of State banks would naturally follow 
on and adopt a uniform system ? 

Mr. Dodsworth. They would have to adopt the forms prescribed by 
the new law, and in that case there would be no difference in the cur- 
rency. There might be differences as to other matters — matters regu- 
lating loans and deposits — but as to currency, every note issued, 
whether of a national bank or a State bank, would be under the same 
conditions. 

Mr. Henderson. Then, you would not dispense entirely with some 
sort of national control over State banks? 

Mr. Dodsworth. Matters outside of the circulation of State banks 
should be undoubtedly left independent of national legislation. 

Mr. Henderson. I mean as to circulation. You do not intend to 
dispense with national control and national supervision over the cur- 
rency issued by State banks? 

Mr. Dodsworth. No, sir. 

Mr. Johnson, of Indiana. Do you think that we can so separate the 
functions of a bank of issue from the functions of a bank of discount 
and deposit that the issue function could be subject to one jurisdiction 
and the discount and deposit function be subject to another jurisdic- 
tion without inviting conflicting claims of jurisdiction between the 
United States and State authorities, and without bringing about ajar- 
ring of the system ? 

Mr. Dodsworth. I think so. 

Mr. Johnson, of Indiana. It does not suggest any such difficulties 
to your mind whatever? 



NATIONAL CUREENCY AND BANKING SYSTEM. 201 

Mr. Dodsworth. It does not. In the case of national banks there 
can be no jar between the issue department and the discount branch 
of the business. And if it were found by any State that in order to 
have its banks avail themselves of the privilege of issuing notes the 
conditions would conflict with some existing law relating: to deposits or 
redemption, or whatever it might be, outside of note circulation, the 
State legislatures would change their laws so as to produce a smoothly 
working condition as between the issue business of the banks and the 
discount or other branches of the bank. 

Mr. Johnson, of Indiana. You would expect, then, that the condi- 
tions imposed by the national authorities would take precedence over 
any inconsistent provisions in the State charters, would you? 

Mr. Dodsworth. I am not sure whether I understand your question. 

Mr. Johnson, of Indiana. You would expect that all of the condi- 
tions imposed in this proposed system b}^ the Federal authorities on the 
banks should have precedence over any inconsistent provisions imposed 
by the charters from the State, whether those inconsistent provisions 
referred to issue or to deposits, or whether they were inconsistent 
directly or only as a matter of inference? 

Mr. Dodsworth. Precisely. 

Mr. Johnson, of Indiana. You would subject the State banks of issue 
to every one of the pro visions of the national-banking law? » 

Mr. Dodsworth. So far as those provisions relate to the issue of 
bank notes, but no further. 

Mr. Johnson, of Indiana. You would supervise the visitations pre- 
scribed by the Federal authorities for national banks over State banks 
also, including the right of examination by experts, and including com- 
pulsory reports under oath by the bank officials? 

Mr. Dodsworth. With reference to these police provisions (if I may 
so call them), if it were possible for the Comptroller of the Currency to 
get his knowledge through methods less offensive it would be prefer- 
able, 1 think ; but if not, and if the present regulations should be a neces- 
sity, why I think they ought to be enforced. 

Mr. Johnson, of Indiana. Suppose a State bank should become 
insolvent, to whom would you intrust the appointment of a receiver? 

Mr. Dodsworth. To the Comptroller of the Currency at Washington. 

Mr. Johnson, of Indiana. It has never occurred to you that there 
would be any lack of simplicity or harmony in the system which you 
suggest? " 

Mr. Dodsworth. There is some complexity, I concede. It might 
be better if we could avoid a system which from the beginning embar- 
rassed the whole country, but the conditions of the country were 
not such as to admit of their being dispensed with. But we have got 
to have established methods, and to observe them as we find them, and 
it seems to me that we must conform ourselves to them. 

Mr. Johnson, of Indiana. The established conditions that you refer 
to have simply limited the issuing of notes under the national banking 
law to national banks, have they not? 

Mr. DodsW' orth. Yes. 

Mr. Johnson, of Indiana. W^hat would you consider safer and better 
for the people of the country, a system of note issue that was exclu- 
sively under national control or one that was exclusively under the 
control of the States? 

Mr. Dodsworth. I favor the largest possible method of freedom in 
all such matters. But at the same time, in the matter of providing a 
circulating medium, you have got to insist on everything which is con- 



202 NATIONAL CURRENCY AND BANKING SYSTEM. 

ducive to the safety of the public as holders of the notes to be issued 
by the banks. That is, and necessarily should be, to some extent, 
regarded as a supersedere of the liberty of the bank. 

Mr. Johnson, of Indiana. That is an inferential answer. Can you 
answer my question more directly? 

Mr. Dodsworth. If there is anything more specific in the question 
I shall be glad to answer it. 

Mr. Johnson, of Indiana. The question I asked you was this: Which 
do you consider safest and best for the interests of all our people, a 
bank system of issue entirely under national control or a bank system 
of issue under the control of the several States, each State to devise 
its own system? 

Mr. Dodsworth. As an abstract principle I concede that the issu- 
ing of currency is an essentially different function from any other 
function exercised by the banks, and that whatever provisions should 
be made in regard to the exercise of that function it should be provided 
by the Federal power, on the same grounds that the Federal Govern- 
ment is intrusted with the power of issuing coin, and for the same 
reasons of public safety. But I do not say that, in securing that uni- 
formity and safety of issue, it is necessary that there should go along 
with it an entire uniformity of banking methods generally. And it 
appears to me that, in order to provide for a more natural and fair and 
altogether more elastic system of general banking, there should be a 
freedom for different methods of banking operations as respects, for 
instance, the diversity of banking institutions which we have among 
our several States. I conceive that it is better that we should have 
freedom and an absence of central restraint over those functions of 
banking. 

Mr. Johnson, of Indiana. You intend that answer to be taken in 
connection with what you said about State banks ? 

Mr. Dodsworth. I do. 

The committee here took a recess until 2 o'clock p. M. 

After the recess Mr. Dodsworth continued his statement as follows : 

Mr. Oox. Mr. Dodsworth, as I got your idea in regard to the State 
banks, it was that the great thing to be desired was that their circula- 
tion, if they put out circulation, should be as good as any other paper 
currency; that is the point we are working to? 

Mr. Dodsworth. Yes. 

Mr. Oox. When we do that, as I understand your theory about it, 
then the Federal Government should have control of that matter of 
issues, and no further? 

Mr. Dodsw^orth. That the Federal Government should have control 
over currency matters alone. 

Mr. Cox. I mean over the banks issuing paper money. 

Mr. Dodsworth. Yes. 

Mr. Oox. So you would limit the Federal Government to the point 
of issue of paper alone? 

Mr. Dodsworth. You refer to Federal law? 

Mr. Cox. Yes; I refer to the Government and the laws that would 
control the issue of State-bank paper. 

Mr. Dodsworth. Yes, sir. 

Mr. Cox. And when that point was reached you would stop there and 
leave the States to control the other matters? 

Mr. Dodsworth. Precisely. 

Mr. Oox. That is the proposition ? 

Mr. Dodsworth. Yes, sir. 



NATIONAL CURRENCY AND BANKING SYSTEM. 203 

Mr. Cox. To make the issue perfectly good— and that is the point to 
be reached, not to be doubted — if the Government requires of the State 
bank to deposit 30 per cent of its capital stock in the hands of a pub- 
lic officer, then makes the assets of the bank liable, in the first instance, 
for this issue, and then makes the stockholders liable to the extent of 
their stock, can there be any doubt about the validity of these notes, 
do you think? 

Mr. Dodsworth. The sufficiency of the guarantee afforded, I suppose 
you mean? 

Mr. Cox. Yes. 

Mr. Dodsworth. I think it would.be a superabundant guarantee, 
and, so far as respects the 30 per cent, needlessly injurious to the 
guarantor. 

Mr. Cox. So that when you put 30 per cent of the capital stock of a 
State bank in the hands of an officer — I assume the character of the 
officer to be good — you give a first lien on the assets of the bank, and 
then the liability against the stockholders. Is it possible that paper 
based upon such conditions would be anything else except good? 

Mr. Dodsworth. I suppose it would be the largest credit ever given 
against an obligation. 

Mr. Cox. Is not that especially so when the circulation is limited to 
the 70 per cent? 

Mr. Dodsworth. I agree to it. 

Mr: Cox. Could there be any doubt about its being good? 

Mr. Dodsworth. No question about that. It is needlessly supera- 
bundant. 

Mr. Cox. Is it not something more than practice and experience have 
demonstrated was ever required? 

Mr. Dodsworth. I know of no such guarantee in existence in any 
form. 

Mr. Cox. Leaving that point, if the State bank is required to pay in 
30 per cent of its capital stock, then required to give a first Hen upon its 
assets, then required to make the stockholders liable to the extent of 
their stock, and then is limited to 70 cents on the dollar of its capital 
stock, do you know of any institution in this or any other country that 
makes it safer than that? 

Mr. Dodsworth. No, sir. 

Mr. Cox. Let me turn your attention to the fact that in certain local- 
ities of this country, especially the agricultural part — and I am more 
familiar with the South than any other section — the publio securities, 
such as bonds, stocks, and that character of liabilities, have substan- 
tially left us in the South, on account of our misfortune's — not stopping 
to speak about that. If a State bank organizes and makes its issue 
upon the security we have just discussed, do you not think that would 
be a great benefit to the people of the South? 

Mr. Dodsworth. The largest benefit possible. 

Mr. Cox. Is it possible to confer any more than that in the way of 
banking? 

Mr. Dodsworth. No, sir. 

Mr. Cox. In discussing what has been called the safety fund of 5 
per cent, and making all of the national banks in one sense liable for 
all of it, let me ask your opinion upon this idea of that clause, the fifth 
clause, I think, in the Secretary's bill, providing that each bank stands 
for all the rest. 

Mr. Russell. The contingent liability clause. 

Mr. Cox. Contingent liability. 



204 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Warner. Mutual guarantee. 

Mr. Oox. Mutual guarantee; no matter what you call it, so you get 
what is in my mind. Can you see any objection to this"? The objec- 
tion, of course, in that lies in the fact of one bank going security for 
another that it knows nothing about. Suppose you require, instead of 
that, that the national bank, before it declares any dividends on its 
profits shall charge off, something like the premium account that we 
have had for a number of years, until it reaches the sum of 5 per cent 
upon its circulation, and holds that sum (5 per cent) unimpaired. 
Would not that be as good a security, so far as that individual bank 
were concerned, and would it not be better than to become security for 
the other banks'? 

Mr. Dodsworth. I think so. Moreover, I think it is wholly an 
unsound principle of banking, for banks to redeem in this way a note 
under special emergency, to guarantee each other's obligations. In 
this case it is entirely unnecessary to make that guarantee. The 5 per 
cent fund, which is proposed to provide that amount for the redemp- 
tion of notes in case of failures, would very much exceed any probable 
amount of failures within a given time. We will say $750,01)0,000 
would be the necessary amount of bank circulation in the event of 
withdrawing the greenbacks. Theu $500,000,000 would be required to 
compensate for that withdrawal of legal tenders; and, in addition to 
that, you would have a certain amount of bank circulation outstanding, 
$200,000,000, more or less, which would make the bank circulation 
in that event $700,000,000. Five per cent upon that amounts to 
$35,000,000 withdrawal, in the first place, from the current circulation 
of the country, and so far injurious, and so far a waste of credit. 

The actual amount involved in failures, as demonstrated in the expe- 
rience of the national banks since they began, has been for that period 
of thirty years, as I have already stated, about $1,400,000. Suppose 
the bank issues to exceed the past average twofold, which would give 
you a circulation outstanding of about $800,000,000 bank notes, in that 
case. At the ratio of risk which actually exists upon bank notes you 
would have a possible annual crop of failures to an amount that would 
involve some $2,500,000 to $3,000,000 of bank notes that would be nec- 
essary to provide for; and for that you would, under this 5 per cent pro- 
vision, have $35,000,000 held. It seems to me to be a total waste of 
guarantee, unjustifiable by experience, and not sound banking. It 
seems to me that a 2 or 2 J per cent fund, instead of a 5 per cent 
fund, would correspond in a very much more conservative way to the 
actual requirements; and beyond that lam not satisfied in my own 
mind that there* is any necessity for a fund of that character. 

Mr. Oox. I agree with you exactly. I do not think there is any 
necessity for it, but I am trying to folloAv this up so that there will be 
no doubt about it. Let me suggest this idea: By the national-banking 
system proposed by the plan of the Secretary of the Treasury there is 
the 30 per cent of greenback deposit, then there is the liability clause, 
then there is the first lien on the assets, and then there is that safety 
fund, as he calls it. Now, if that safety fund can be charged off by the 
banks for each individual bank, you see it becomes assets again of the 
bank, though it is charged off before you reach the profits. Would it 
not be better for each individual bank to proceed in that way than for 
the banks to become guarantors for each other? 

Mr. Dodsworth. I think so, decidedly. 

Mr. Oox. The object of the investigation of national banks by the 
Federal Government is to reach the point where the issue is absolutely 



NATIONAL CURRENCY AND BANKING SYSTEM. 205 

safe, and when yon come to the details of it it is only for the purpose 
of accomplishing and reaching the point where the issue is perfectly safe, 

Mr. Dodsworth. Precisely. 

Mr. Cox. So, if the Secretary or the Comptroller of the Currency be 
satisfied, under proper regulations and rules, that the State bank has 
paid in its capital stock, that it has deposited the 30 per cent of that in 
United States Treasury notes, that its charter has the liability clause, 
or the general law — I call it a charter — provides for a first lien on the 
assets of the bank, would you have any doubt about the solvency of 
the notes issued ? 

Mr. Dodsworth. I should regard that as affording as strong a 
guarantee for the safety of the notes as the application of the same 
principle to national banks would. 

Mr. Cox. You would regard such notes as that as safe as if issued 
under the national-bank system? 

Mr. Dodsworth. Yes. 

Mr. Brosius. I understand your statement to be that there is no 
better security for a bank circulation than the assets of the bank itself. 
The assets of the bank are affected in value by the ability of the bank 
to make its creditors sure of its solvency; is not that so? 

Mr. Dodsworth. Yes. 

Mr. Brosius. The paper of an insolvent bank is not of much value ? 
is it? 

Mr. Dodsworth. It is not. 

Mr. Brosius. You say that the assets of the banks constitute the 
best security for their circulation that can be provided. Do you mean 
that statement to refer to the aggregate, that is, to the assets of all 
the banks, comparing the aggregate risk with the aggregate security, 
or do you mean to make the statement to cover also particular and 
independent banks, every bank % 

Mr. Dodsworth. I have not stated that, I think; if I did so it was 
through inadvertency. I have not stated that the assets alone were 
the best security. 

Mr. Brosius. I include the double liability of the stockholders. 

Mr. Dodsworth. In that case I say that the guarantee is largely 
superabundant, not merely as applied to the banks taken as a whole, 
but as taken in the case of individual banks. 

Mr. Brosius. Let me give you a case : Suppose a bank has a capital 
stock of $100,000. It deposits 30 per cent of its proposed circulation. 
That takes out 75 per cent of its capital stock. There remains then in 
the custody of the bank for its use 70 per cent of its capital stock and 
75 per cent of circulation, making, both together, 145 per cent of its 
capital stock. Suppose the management of the bank turns out to be 
bad; that its officers are rascals, and a number of its stockholders 
become insolvent, so that their liability is not a factor in the security. 
What becomes of the notes of that bank when the break comes? 

Mr Dodsworth. In the first place, you have assumed 

Mr. Brosius. I have assumed a bad case. 

Mr. Dodsworth. You have assumed the 30 per cent deposit, and* 
that is a thing I would not favor. 

Mr. Brosius. I thought you did. 

Mr. Dodsworth. In the first place, there is 30 per cent of the amount 
of notes provided for. That would leave, say, 8450,000 out of the 
$1,000,000 capital. 

Mr. Brosius. I am only speaking of a single bank having a capital 
stock of $100,000. There is 15 per cent of the circulation still unpro- 
tected. 



206 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Dodsworth. The 30 per cent is 30 x>er cent of 75 per cent? 

Mr. Brosius. Thirty per cent of its circulation ; yes. 

Mr. Dodsworth. You would have, in the first place, that 30 per 
cent of cash deposit. That would leave you, say, To per cent to be pro- 
vided. That would have to be called for from the stockholders. 

Mr. Brosius. Now, suppose the stockholders were insolvent. 

Mr. Dodsworth. I can only say to all this that it is, of course, quite 
a possibility to draw a picture of that character, and one even more 
dark ; but at the same time I conceive that such a case would not repre- 
sent a natural occurrence probably once in ten years, and it does 
appear to me that a law should be made to provide for probabilities as 
to actual events, and not for extreme improbabilities. 

Mr. Brosius. Do you not provide for that very contingency when 
you provide a guarantee fund to be made up by all the banks to secure 
the liability of each and every bank! And, if there were no liability at 
all of this character, no possibility of such a case as I have described, 
when the assets of a particular bank would fall short of perfect security, 
would you ever require any additional guarantee of any kind except 
that all the assets and stockholders of each particular bank for itself 
and not jointly with others'? 

Mr. Dodsworth. I concede that the 5 per cent deposit might suffice, 
and undoubtedly would suffice to provide against such an extreme 
improbability as you have supposed, but I do not conceive it to be good 
banking or wise legislation to make such an extreme provision for such 
an extreme improbability. 

Mr. Brosius. I want your opinion, if you will have the kindness to 
give it to me, upon one other point: Is it possible or practicable to 
establish a banking system that will furnish a safe currency, and at the 
same time an adequately elastic currency for each bank, and supply 
collaterals or security enough to protect the Government in case it 
should have the ultimate liability in case of loss — to protect it against 
that liability, dollar for dollar? 

Mr. Dodsworth. It is possible to create such a scheme in the form 
of a statute, but I do not think you could ever get; it worked out into 
actual operation. 

Mr. Brosius. Would it be sufficiently profitable to work out in prac- 
tice ? 

Mr. Dodsworth. ETo, sir; it is inconceivable. 

Mr. Brosius. The State of Pennsylvania — if you will pardon me for 
directing your attention to it— provides that before a bank of issue can 
be established, securities must be deposited with the auditor- general 
equal to the amount of circulation; that is, dollar for dollar. ]S"ow, in 
your judgment, under the constitution of Pennsylvania we could not, 
could we, establish a banking system that would work out in practice? 

Mr. Dodsavorth. That would give you a satisfactory currency 
system ? 

Mr. Brosius. Yes; and work out in practice. 

Mr. Dodsworth. That is my judgment, most decidedly. 
• Mr. Sperry. In banking on the safety fund principle, what would 
you consider a safe minimum capitalization for a bank permitted to 
issue circulation ? 

Mr. Dodsworth. What would I consider a safe ratio of issues to 
capital? 

Mr. Sperry. No; not that at all. The Canadian safety-fund sys- 
tem, for instance, provides for a minimum capitalization of $500,000, 
as has been stated here, of which one-half must be paid up before they 



NATIONAL CURRENCY AND BANKING SYSTEM. 207 

can do business. In attempting to establish the safety-fund principle 
in our system of banking, what would you consider the safe minimum 
capitalization for a bank in order to be permitted to issue circulation'? 
Do you get the idea of my question 1 

Mr. Dodsworth. Yes,- I think so. I do not see why there should 
be any limitation upon the capital of the bank; that so long as the 
ratio was the same in all cases, it seems to me that the safety or the 
risk would be the same in all cases. 

Mr. Sperry. It occurred to me that a large bank might get the 
services of more conservative and better bankers, and take less risk, or 
stand the pressure better, than would be the case with small banks. 
I wanted to know if that would be your judgment? 

Mr. Dodsworth. That is my judgment. 

Mr. Sperry. If it is your judgment, you would still think that the 
bank with a small capital could just' as safely issue circulation without 
resulting in a tax on the large banks through the safety fund? 

Mr. Dodsworth. Yes, sir. 

Mr. Russell. Referring to the suggestion of Mr. Cox to section 5 
of the plan as proposed by the Secretary of the Treasury, that sugges- 
tion, as I understand it, being that the contingent liability of that section 
be substituted by what he designated as a 5 per cent reserve or safety 
fund; if that suggestion were adopted, does it not create an additional 
requirement, though not necessarily so, for national-bank circulation 
over and above the requirement of State-bank circulation? 

Mr. Dodsworth. Do you ask as to whether that is the implication 
of the Secretary's way of making it? 

Mr. Russell. Ko; I refer to the Secretary's plan, as represented in 
the bill which we have before us in section .5, which relates to the 
creation of a safety fund, and provides for a pro rata contingent liabil- 
ity, if necessary, upon all national banking establishments to maintain 
that safety fund. Mr. Cox's suggestion, if 1 understood it, was to sub- 
stitute for that contingent liability a 5 per cent reserve, which each 
bank should maintain. Xow, if that suggestion were substituted for 
the contingent liability (the 5 per cent reserve), would there not then 
be in that 5 per cent reserve an additional requirement — I will not say 
a necessary requirement — for the safety of the circulation for national, 
bank circulation over and above any requirement for State-bank circu- 
lation, as provided for in this same bill? 

Mr. Dodsworth. I presume that would be the case. I have not 
read the bill. 

Mr. Sperry. In other words, your presumption being correct so far, 
it would be a discrimination favorable to the State-bank circulation 
over national-bank circulation? 

Mr. Dodsworth. Yes. 

Mr. Cox. The bank assumes for itself to protect its own circulation, 
which is 5 per cent; that is not held as a reserve — not technically as a 
reserve — but before it can divide the profits of a bank it charges oif, 
just exactly like you do with a premium account, and then it is an 
asset of the bank, and the bank has the use of it? 

Mr. Russell. Yes; but that is a requirement for national-bank 
circulation. 

Mr. Cox. I assume your point for the present, but the point I want 
to call attention to is that when the bank takes its profits, and out of 
those profits first reserves this 5 per cent, it is not set aside and locked 
up in its vaults at all, but becomes an active asset of the bank, so that 
a dollar of stock would be worth $1.05, which makes that additional 



208 NATIONAL CURRENCY AND BANKING SYSTEM. 

plan for redemption in the nature of a surplus. But that does not eut 
the bank off from using it. In the crisis or panic that we have gone 
through in this country — this trouble, whatever you may call it— you 
give in your paper that you read this morning the losses that were 
sustained by the depositors in national banks. Now, I ask you in regard 
to State banks. In this crisis has not that depositor lost less in the 
State banks than he has in the national banks'? 

Mr. Walker. In proportion to the capital, do you mean? 

Mr. Oox. In proportion to the capital? 

Mr. Dodsworth. I should have to refer you to the Comptroller's 
report for that. 

The Chairman. That is all in the Comptroller's report. 

Mr. Cox. I understand that, but we want it in the evidence, too. 

Mr. Dodsworth. I think the actual loss incurred by State banks was 
somewhat larger than in the case of national banks, but the number of 
failures was smaller. The significance of that difference might depend 
very much upon the geographical distribution and upon the severity of 
the panic in different sections. The State banks are distributed prin- 
cipally throughout the Western, Southern, and Pacific States, a very 
large proportion of their entire capital, about 80 per cent of the State 
banks, being distributed over those sections south and west of this 
point. That has got to be taken into consideration in estimating the 
exact significance of the fact that the failures were larger under the 
State system than under the national. 

Mr. Cox. The national failures were larger than the State failures, 
taking it all together? 

Mr. Dodsworth. The State failures were larger in amount, but the 
number of bank failures was less in the case of national banks than in 
the case of State banks. 

Mr. Hall. Mr. Dodsworth, under section 5 of the plan suggested by 
the Secretary of the Treasury, there is a provision that an assessment 
be made of one-fourth of 1 per cent for each half year on the amount of 
the circulating notes outstanding, until a sum amounting to 5 per cent 
of the total circulation of the national banks outstanding is secured, 
which is called a safety fund. In addition to that there is what the 
Secretary calls a guarantee fund, which is the deposit of 30 per cent of 
the circulating notes in greenbacks. Now, section 5 of his plan further 
provides that immediately upon the failure of a national bank to pay 
its notes the 30 per cent guarantee fund payable in greenbacks is 
turned over into the safety fund, and the notes of the failed bank are 
at once paid out of that 5 per cent safety fund. 

After that the Government makes an assessment, if there is not 
enough in that 5 per cent safety fund to pay the notes, and keeps that 
up to 5 per cent; but any bank that pays the assessment to keep up 
this 5 per cent safety fund then has a lien upon all the assets, and there 
is also the double liability clause with reference to stockholders of failed 
banks to reimburse it. Do you believe that that creates any hazard or 
contingent liability upon the other banks that would tend to prevent 
them from going into business under this law? Is not the liability so 
remote that there would be no danger of banks refusing to organize 
under a law of this kind? 

Mr. Dodsworth. Certainly I should not consider it a sufficient 
inducement for a bank proposing to organize to refuse to organize. 

Mr. Hall. There is nothing in that that would scare them out, in 
your opinion? 

Mr. Dodsworth. No, sir. 



NATIONAL CURRENCY AND BANKING SYSTEM. 209 

Mr. Walker. You. proposed in your paper, if I remember rightly, to 
divide the territory of the United States into six redemption districts. 
You advise that? 

Mr. Dodsworth. Yes. 

Mr. Walker. You thought that it was a proper scheme to provide 
redemption agencies. I want to ask you if you propose that each 
bank in the territory designated should be required to send notes 
which it desired to be redeemed to the agency for that district! 

Mr. Dodsworth. Yes, sir. 

Mr. Walker. That that should be a fixed obligation upon each one 
of these banks'? 

Mr. Dodsworth. In case of its wishing 

Mr. Walkek. That is to say, that if a bank sent notes for redemp- 
tion anywhere it choose, they should go to the redemption agency for 
that district? 

Mr. Dodsworth. It is a provision enabling the bank receiving the 
notes of another bank to get those notes redeemed. But when you 
ask whether it is an obligation on the bank to get the notes so 
redeemed at all 

Mr. Walker. That is not my question at all. I will ask my 
questions so that they will not need an amendment. 

Mr. Dodsworth. I think I understand you. That is the purpose of 
the provision, to enable the bank receiving the notes of another bank 
to get those notes redeemed. 

Mr. Walker. That is a pretty big answer to a small question, and I 
will repeat the question. You advise dividing the country into six 
parts, with a redemption agency in each part. Is it your purpose 
that each bank in that territory shall be required to send its notes for 
redemption to the redemption agency for that territory 1 ? 

Mr. Dodsworth. Yes, sir. 

Mr. Walker. That answers the question, and that is all I want on 
that point. 

Mr. Dodsworth. Allow me to qualify that answer somewhat. 

Mr. Walker. In any way you choose, certainly. 

Mr. Dodsworth. If a bank within a given redemption agency 

Mr. Walker. No; territory. 

Mr. Dodsworth. Territory; I beg your pardon. If a bank within 
a given territory has notes issued by some bank outside of its particu- 
lar territory, it would likewise be empowered to forward that to the 
agent or agency in its own territory. 

Mr. Walker. To forward that where? 

Mr. Dodsworth. Forward that to the agency in its own district. 
That agency would be expected to forward it to the agent of the dis- 
trict in which the notes were issued. 

Mr. Walker. I assumed that you had that in your mind. I cer- 
tainly had it in mine. Is it not a fact that, other things being equal, 
a firm or a bank ; or anything else, is sound or unsound, is deserving 
of credit or not deserving of credit, in proportion as its liabilities are 
to its assets, whether large or small? That is true, is it not? 

Mr. Dodsavorth. Yes, sir. 

Mr. Walker. Why, then, in outlying agricultural districts, where 
they want a bank quite as much as they do in a city, and where they 
can not usually aggregate a capital of more than $50,000 or $100,000, 
would you prohibit them from issuing circulating notes in proportion 
to their capital stock paid up and unimpaired 1 ? Why not allow the 

NAT OUR 14 



210 NATIONAL CURRENCY AND BANKING SYSTEM. 

bank with a capital cf $50,000 to issue $25,000 currency just as readily 
as you allow the bank of $500,000 to issue $250,000 of currency? 

Mr. Dodsworth. Certainly I would. 

Mr. Walker. I did not know that you took that position; 1 thought 
you contradicted it. I have nothing further to say. 

Mr. Dodsworth. I answered that to the gentleman at the other end 
of the table. 

Mr. Sperry. I will ask you to state whether, in your opinion, there 
is any reform needed in our present system of primary money. 

Mr. Walker. What is primary money? 

Mr. Sperry. Money of ultimate redemption — coin, gold and silver. 
Whether any reform is needed, in your opinion, along that line? If so, 
I shall be glad to hear what you have to say on that subject. 

Mr. Dodsworth. That touches upon a question that I presume is 
not included within the present inquiry. 

Mr. Sperry. Yes ; I think it is. 

Mr. Dodsworth. It touches upon the silver question, and I should 
be glad not to answer any question upon that. 

Mr. Walker. I think he ought to be allowed to go into that. 

The Chairman. The chair thinks we had better not. That is a sub- 
ject not before the committee. 

Mr. Sperry. It might be, and I would like to have the gentleman's 
opinion. 

Mr. Dodsworth. I chink the providing of a bank currency sy stein 
does not necessarily involve any consideration of what your coinage 
shall be. 

Mr. Sperry. Is it not so intimately connected with it that the one 
affects the other ? 

Mr. Dodsworth. It does affect it, undoubtedly, 

Mr. Sperry. And from that point of view I want your opinion. 

Mr. Dodsworth. Of course all bank currency f in the event of our 
going upon a silver basis, would become payable in silver inevitably. 
It seems to me that, in all provisions relating to redemptions or pay- 
ments of any kind, the kind of payment contemplated should be desig- 
nated as lawful money, which would cover whatever might be lawful 
money at the time the obligation became payable. 

LETTER FROM HON. A. B. HEPBURN. 

The Chairman. Gentlemen of the committee, Mr. Dodsworth will 
be here in a moment, and in the meantime the chair desires to state 
that he has received a letter from Mr. A. B. Hepburn, formerly Comp- 
troller of the Currency. Mr. Hepburn was invited to appear before the 
committee, and came and was here one day, and then was obliged to 
leave, on account of a prior engagement, to return to New York on the 
4 o'clock train, and was not able to be put on the stand. He has writ- 
ten the chairman of this committee, submitting his views in regard to 
the question before us, and if there be no objection the chair will hand 
it to the reporter to be printed. 

Mr. Hall. Let us have it read. 

The chairman read the letter, as follows : 

The Third National Bank op the City of New York, 

New York, December 12, 1894, 
My Dear Sir : I am very doubtful about my ability to appear before 
the Committee on Banking and Currency on Thursday, and in view of 



NATIONAL CURRENCY AND BANKING SYSTEM. 211 

all tlie circumstances I think, perhaps, no material good would be 
accomplished by my returning to Washington. 

I therefore take the liberty of calling your attention to some features 
of Mr. Carlisle's bill which have undoubtedly occurred to you, but 
which I trust you will call to the attention of your committee, in execu- 
tive session, after your hearings are closed and while you are engaged 
in the preparation of a bill. 

Of course Mr. Carlisle's provisions requiring banks taking out circu- 
lation to deposit greenbacks or Treasury notes is made in the interest of 
relieving the Government, and not for the benefit of the currency issue. 
I do not know that I have any objection to that. I should like to see any 
safe course pursued which would relieve even temporarily the Govern- 
ment from present embarrassments. It should be borne in mind, how- 
ever, that responsibilities and obligations to fnrnish gold that are trans- 
ferred from the shoulders of the Government immediately fall upon the 
shoulders of the banks, and this currency proposition should be made 
in some form attractive, and not hedged about by too stringent pro- 
visions lest the banks will hesitate, if not decline to take out circu- 
lation. 

It is by no means an unmixed blessing to the banks, the retirement 
of the Government from the banking business. While it would benefit 
the Government and the people as a whole, it would certainly put 
added responsibilities upon the banks. Now, in times of panic, they 
have only their depositors to take care of; then, they would have 
both depositors to supply with funds and the circulation of the coun- 
try to redeem in coin upon presentation. 

I am strongly opposed to the proposition to do away with the require- 
ments that banks keep reserve, and my understanding of the law does 
not tally with that of the Secretary. The law, when it was drafted, as 
I understand it, was based upon the experience of prudent and well- 
managed banks, and the reserve was fixed at a point where prudent 
and well-managed banks carried their reserve. It was sought to fix a 
limit so that a well -managed bank would as often be over as under its 
reserve in the regular course of business. 

This law is made not for the nine banks who would observe it with- 
out any legal provision, but for the tenth one that, either through 
incompetent, speculative, or unsafe management might fail to keep a 
proper reserve and to keep itself in a sufficiently strong position to 
meet the demands that might be made upon it. The requirement of 
the law is not rigid and inflexible, as named by the Secretary. The 
reserve is there to be used, and a bank is obliged to pay its obligations 
even if it takes the last dollar of its reserve, and the statute contem- 
plates that it will do so. It is required, whenever below its reserve, to 
take proper measures to recover the same, which is wise and right. It 
is also provided that if a bank is below its reserve the Comptroller may 
notify them to make it good, and if the bank fails to do so for a period 
of thirty days after notification he may appoint a receiver. 

There is sufficient flexibility in this provision to admit of banks using 
their reserve at all proper times and under all proper circumstances. 
That they do do it in times of panic is well known, and that the Comp- 
troller has never at such a juncture required them to make good their 
reserve is equally well known, nor would any competent officer do so. 
The statement which the Secretary makes, that the State banks keep 
20 per cent reserve whereas the national banks keep only 18, I do not 
think is well founded. I know it is not true as to the banks in this 
State, and so far as I have any statistical knowledge upon the subject, I 



212 NATIONAL CURRENCY AND BANKING SYSTEM. 

do not think it is true anywhere, certainly not on the average of the 
country. 

In section 10 the Secretary provides under certain conditions for the 
repeal of the 10 per cent tax He repeals the 10 per cent tax on State- 
bank circulation absolutely, while leaving a tax of one-half of 1 per 
cent upon the circulation of national-bank notes. Here is a discrimi- 
nation at once which would place the national-bank circulation at a 
disadvantage to that extent. Should not the one-half per cent tax be 
retained on State-bank circulation in order to preserve the equity of 
treatment % 

Again, he forbids national banks to issue notes in denominations 
under $10. No such restriction is imposed upon the State-bank cir- 
culation. There should be parity here also. 

Again, he provides for a safety fund contributed by the national 
banks for the payment of the circulating notes of all national banks 
with unlimited liability. Should not the State banks be required to 
provide a safety fund in the custody of some State officer, of the same 
character and upon the same terms, in order, so far as possible, to pre- 
serve the equality between the two kinds of circulation 1 ? I think so. 

Then, instead of doing away with the present reserve required of 
national banks, State banks taking out circulation should be required 
to keep the same reserve, arid the Secretary and the Comptroller should 
be (C satisfied M that they maintained their reserve, had issued no notes 
of less denomination than $10, had provided and maintained their 
safety fund the same as national banks are required to do, in addition 
to the other points mentioned in section 10 in regard to which the 
Secretary and the Comptroller must be satisfied. 

Then the tax, instead of being repealed, should be reduced to one- 
half of 1 per cent. 

Now, as to section 10. It provides that State banks may take out 
circulation, and in case they satisfy the Secretary and Comptroller on 
certain points it shall be exempt from taxation. Now, suppose they do 
not satisfy the Secretary and Comptroller. Suppose they fail to com- 
ply with these provisions, that the bank has been badly managed and 
the appointment of a receiver is necessary; then, in that case, having 
allowed this circulation to be placed in the hands of the people, the 
Government comes forward and exacts its 10 per cent tax, thus aggra- 
vating the situation and impairing what security there may be left for 
the benefit of the note holders and the depositors. 

It seems to me that this is wrong. It is locking the barn after the 
horse is stolen. Instead of ascertaining in advance that the banks are 
entitled to issue circulation and allowing them to do so, they have this 
roundabout, cumbersome, unsatisfactory way of final adjustment. 
What is there to prevent a thoroughly bad State bank from taking 
out circulation, exploiting all they can, and then, when the period is up 
and the time arrived when they must satisfy the Secretary and the 
Comptroller, going to smash. They have utilized this tentative period 
in which to do all the harm they could possibly do. 

On the other hand, a thoroughly well-managed State bank may hes- 
itate to take out circulation with a possible 10 per cent tax hanging- 
over them. Suppose a thoroughly well-managed State bank takes out 
circulation to the amount of 75 per cent of its unimpaired capital, and 
some time in the course of a year or six months, before the time for 
satisfying the Comptroller and the Secretary has arrived, the bank is 
burglarized, and they lose $50,000 or $100,000 through no fault of their 
management, thereby impairing their capital so that the circulating 



NATIONAL CURRENCY AND BANKING SYSTEM. 213 

notes of the previous year have exceeded 75 per cent of their unim- 
paired capital. Under those circumstances they would have this 10 
per cent tax to pay. Thus, again, the Government comes to the front 
to aggravate the sufferings of the people. 

Now, I do not know just what would satisfy the Comptroller and the 
Secretary, but in my judgment nothing less ought to satisfy them than 
five verified reports of condition, published locally and filed with the 
Comptroller, and as many special reports as the Comptroller chooses 
to call for, and also the regular annual examination by an expert 
examiner, and as many special examinations as the condition of the 
bank and the judgment of the Comptroller may dictate. The law and 
practice require all that now of a national bank in order to "satisfy" 
the Comptroller and the Secretary of their condition. Could they, as 
responsible Government officers, accept any less conclusive evidence 
on the part of State banks, and if they do this, as it seems to me they 
inevitably must do under the terms of this bill, they make these State 
institutions in all respects national except as to name; therefore, it is 
wiser and better that State banks desiring to take out circulation 
become national banks in fact. 

If circulation is to continue based upon Government bonds there is 
no reason in the world why State bauks should not be allowed to take 
it out precisely the same as a national bank, but if it is to be based 
npon the assets of the bank I believe that every consideration of pub- 
lic safety and public propriety requires that these institutions should 
be under one central control with uniform laws, uniform requirements, 
and uniform usage. 

The Secretary's discussion of the financial question in general I 
most cordially approve, and the conclusions he reaches I believe are 
wise and sound; but the details of the bill he has submitted, in my 
judgment, are open to very serious criticism. 

Yery respectfully, * A. B. Hepburn. 

Hon. William M. Springer, 

Chairman Committee on Banking and Currency, 

Washington, D. C. 

STATEMENT OF MR. GEORGE GUNTOK 

Mr. George Gunton, of New York, appeared before the committee, 
and made the following statement: 

The Chairman. State your occupation, Mr. Gunton. 

Mr. Gunton. 1 am president of the School of Economics, and there- 
fore what I shall have to say will be said more from the point of view 
of an economist than that of a banker interested in the machinery and 
profits ol banking. 

While listening to the testimony here and watching the committee, 
I have wondered that the committee have as much patience as they 
have. It seems to me that it would wear you out. I do not see how 
you are able to stay day after day and carry on questions and keep 
connected in your minds all the views that are presented. 

Mr. Johnson, of Indiana. We do not. 

Mr. Gunton. If you do not, then you are human. I shall try to be 
as brief and direct as I can, having learned that in that way more will 
be drawn out, if there is anything in a statement, than if there is noth- 
ing in it. 

I conceive the matter of banking as a business rather than as apoliti- 
cal institution. It is to my mind an economical instrumentality for 



214 NATIONAL CURRENCY AND BANKING SYSTEM. 

supplying a social want, very much as a factory is for supplying shoes 
or any other product. But money differs from shoes, in that it has to 
keep going all the time, whereas shoes worn on one pair of feet are 
liable to be worn out. For that reason it seems to be necessary that 
there should be as large an amount of security as possible, compatible 
with the solvency of those who issue the money — a little larger, possi- 
bly, than in the case of those who issue shoes. 

In all the bills and arguments that have been presented before this 
committee, 1 have noticed, almost with rejoicing, a tendency to look 
toward an improvement or a remodeling of our banking and currency 
system so that it shall be more elastic, more free, more economical, and 
less political. Whatever maybe the variations in theparticular schemes 
brought before the committee, at least they ail seem to point in that 
direction, and what I shall have to say will be along the same lines. 

There seem to be three or four conditions that are needed in bank- 
ing and money. One of those is flexibility, another is redemption, 
another is cheapness, and another is freedom — freedom in the going 
into the business and conducting it. 

The schemes of the Baltimore bankers and of the Secretary of the 
Treasury seem to me to fall short of that, in that they neither provide 
coin redemption nor for eliminating the political element from banking. 

1 agree with the gentleman who spoke first this morning, that we 
can never have quick coin redemption unless we get the Government 
issue out of the way, and I believe that the first thing is simply to dis- 
charge the Government so far as the issue of money is concerned, and 
that means the entire retirement of Government notes. When that is 
done the issue of money falls upon the banker; then it is in the hands 
of business. 

The question then arises as to the safety, and here nearly all the 
questions I notice from the members of the committee, addressed to the 
various persons who have been on the stand here, were as to what 
amount of reserve will furnish safety to the notes, how much issue 
there should be in circulation to capital, and about the 30 per cent 
reserve that Mr. Carlisle asks. 

Now, it seems to me that the people in the business know and would 
find out very much better what is necessary to secure the circulation 
than any committee that sits around this table, or any number of men, 
with all due respect to all of you who meet in the two Houses. If it is 
a business, and if there is sufficient responsibility so that those who 
do the business pay the penalty for any mistakes of the business, they 
will find out better where the line of reserve will be and what the 
amount of issue should be relatively to the capital than can possibly be 
done by any persons like us, certainly like myself, not m the business. 

Now, in the first place, it seems to me in reference to security, the 
large aggregate is always safer than the small unit. 

The gentleman from Pennsylvania (Mr. Brosius) asked a question a 
little while ago as to what would happen if a number of the officers of 
banks were rogues, and the number of their stockholders were insolvent. 
Well, in a single bank it might be that the whole thing would go down, 
but in the movement of society I suppose there never was a community 
made up like that. If so, there would be no community. The law of 
averages and business interests and civilization, the survival of exist- 
ence, makes it that in the large body there is but a small proportion of 
that kind. So that it seems to me that in the security of the circulation, 
the wider the ground, or the area upon which it rests, the safer it will 
be; and that as the money must be national — that is, it must circulate 



NATIONAL CURRENCY AND BANKING SYSTEM. 215 

through the community — the banking system should be interrelated, so 
interrelated throughout the whole community that the banking capital, 
and the banking reputation, and the banking interests are combined 
with banking circulation. 

Now, that being the general proposition, it being a business resting 
on economy and profit, every unnecessary insistence upon a reserve 
causes an increase in the cost of the production of bank notes, or, if 
you like, the cost of running a bank. Every increase in the cost of 
running a bank affects an increase, necessarily and ultimately, in the 
rate of interest. You can not help it. The rate of interest is the pay 
the bankers get for going into banking, and the reason why national 
banks do not issue is because there is no profit in it, as you have 
been told. Therefore, it is necessary that banking may be done as 
cheaply as possible in order that people who want money may get 
money at as low a rate of interest as possible. 

Another point that seems to me to be found in this situation is that 
the people who need money most, and need it very badly at special 
times of the year, are the country people, and unless they can have it ? 
unless the machinery of banking will supply it to them as cheaply as 
the central banks will, they are at a positive disadvantage. That is 
the case to-day. Of course the great banks in the cities do not need to 
issue notes. The Chemical Bank of New York does not issue notes. 
It depends upon its large line of deposits. But the country banks 
have no deposits, or very few, and their money has to come from the 
center. So that they have to pay more than double the interest that is 
paid by the city people. 

Now, that seems to me to be one of the legitimate complaints that is 
behind the Populistic movement, namely, that the money is dear in the 
sense that it costs them a great deal to get it. 

The banking system, if it is to be radically reorganized, ought to be 
so reorganized that it can supply notes, supply money, on the elastic 
plan nearly as cheaply, if not quite, at the extreme parts of the country 
as in the center; and that can only come by the possibility of banks 
being able to practically furnish what I call costless notes. If the 
banks can issue their own notes to their own people in their own locali- 
ties, with as little cost as possible in the banking machinery, then the 
rate of interest of course will be low. I believe the rate of interest is 
subject to exactly the same economic influences as is the price of any 
commodity supplied to the community. 

A gentleman of the committee yesterday morning asked whether the 
cost of the 30 per cent fund provided for by Mr, Carlisle's bill would 
not increase the rate of interest. The gentleman who was on the stand 
at the time said he thought not; that the rate of interest was governed 
by the law of supply and demand. If you will permit me just to put a 
pin in there, I think that is an entire heresy; that the law of supply 
and demand only acts upon that matter down to the point of the cost 
of doing the thing. I think that the dearest bank will be the bank 
which at the greatest disadvantage can supply its notes; that it will 
have to charge enough interest to pay its working expenses, or else it 
will not operate. And what it can get the others will get in the gen- 
eral tendency to uniformity in the rate of interest. 

Therefore, if you, to-day, by unnecessary reserves or limitations of 
issue to capital, or any other way, add to the amount necessarily 
invested in the business done, you increase the cost of doing the busi- 
ness, and if you increase the cost of doing the business there is not 
power enough in all the laws and all the forces of society to make a 



216 NATIONAL CURRENCY AND BANKING SYSTEM. 

bank go on without changing the rate of interest sufficiently to cover 
the cost, no matter what the bank may be. So that when we give the 
people a low rate of interest we must give them the minimum amount 
of burden on banking machinery. 

i^ow, I submit for that reason, that the minimum amount of the bur- 
den which would be involved in the cost of banking machinery is that 
which the experience of the bankers themselves will discover, and not 
what any body of legislators can arbitrarily fix at this line or that 5 and 
for that reason I am not satisfied with Mr. Carlisle's plan, because it 
does not require the redemption of Government greenbacks, and until 
they are redeemed there can be no coin redemption. To say that the 
Secretary of the Treasury may retire them at his option is to say that 
they will never be retired. I do not think it is worth one straw to 
leave it to the option of the Secretary of the Treasury to retire the 
Government greenbacks when there is a surplus. 

You know, gentlemen, that when there is a surplus there would be 
some political cry that there should be a reduction of the tariff, or 
something else to eat up the surplus, or to reduce the revenues in some 
way; and, if there was any little movement toward the greenback busi- 
ness, you would all be so weak you would not dare to talk about retir- 
ing Government greenbacks, because you would be afraid you would 
lose some votes in the States where the greenback issue was up. You 
are all human, and that is what would be sure to happen. 

The state of mind of the public to day is better toward this question 
than perhaps it has ever been before. The educational experience we 
have had in the last year or two is such that the public mind is now 
ready for some overhauling of our monetary system, and I think their 
experience and education have been sufficient to permit you to make 
the very best bill you are able. I believe there never was a time when 
you Avere less called upon to compromise and sort of catch at straws 
about this sentiment or that sentiment. So far as certain conditions 
that have recently obtained are concerned, I simply believe, Mr. Chair- 
man, that we can afford at this time to do what is right, and do the 
best we can. That you can not always do. The public mind is such 
that sometimes, perhaps, no legislative committee can possibly do the 
best it knows how, because public sentiment is in a state that would 
simply kill it. That is sometimes the case, and legislators have a 
harder time, I know, than people like myself think when we stand off 
all the time criticising yon. 

Compromising and tacking are no doubt necessary modes of existence 
at times, but I believe there is less of it to-day than ever before, and I 
believe that you gentlemen can afford to go right straight at your work 
and do the best you know how. 

Mr. Carlisle said that the Government greenbacks ought to be with- 
drawn, and the Baltimore plan says that the Government greenbacks 
ought to be withdrawn. Then withdraw them. I anticipate that some 
one will ask me the question, and so I say the way to withdraw them 
would be for the Government simply to issue bonds for that purpose, 
as has been suggested, say at 3 per cent, and let the banks issue on 
these notes just as they are taken up. In other words, that they be 
funded. I do not believe there is any reason for not doing that. 

I have no objections, myself, to this 5 per cent fund. I do not know 
whether it would be enough or too much, and I do not believe that 
anybody else does. I think the estimate that Mr. Dodsworth has given, 
and that the banks have given, namely, that it would be ample, based 
upon the calculation of the number of failed banks to the national- 



NATIONAL CURRENCY AND BANKING SYSTEM. 217 

bank system, is utterly fallacious, because they propose to withdraw 
the bond basis for the banking* circulation. They are making their 
calculation on future failures. In other words, they are making their 
estimate upon a foundation that they propose to remove, and therefore 
the calculation that the future failures would be what they have been 
in the past, after they have taken that away, I do not think is worth 
one straw, simply because the basis of calculation is withdrawn. 

However, whatever the fund might be, I have no objections to it, 
but I think the safe Avay, the better way altogether, would be on the 
redemption plan, rather than to have the limiting of the issues of 
banks to a certain proportion of the capital, as I observe the Balti- 
more plan provides 50 per cent, and the Secretary's plan 75 per cent, 
and Mr. Walker's plan 100 per cent. Of these plans I think the 100 
per cent is the best of the three. But I do not know why it should 
be put there. I think it should be put on the basis of redemption, not 
on the specific notion of any fund there is there. ' 

The coin redemption is the real test for the safety of the currency. 
It is the test of any of your notes. Just so long as the assets of the 
bank are such that redemption goes on, there is no reason for saying 
that the issue shall be limited here or there. That is the way it seems 
to me. 

I therefore, Mr. Chairman and gentlemen, without taking up very 
much more of your time, suggest a somewhat different plan from 
anything that has been suggested, though parts of it have been 
suggested by almost everybody who has spoken. There is nothing 
new under the sun, probably, that is Avorth much, and I do not 
claim to have anything new. But the idea that I would suggest is 
that the banking system be organized under some confederated plan of 
the banks; in other words, that there be redemption agencies, as has 
been suggested, perhaps, the chief one in New York City, or at some 
great banking center, wherever that is, and I suppose it would be New 
York City; but that there be throughout the country — I do not 
know how many; Mr. Dodsworth has suggested a number, and he is 
probably right as to the number — a greater or less number of redemp- 
tion agencies, as the emergency requires, or in other words, banks that 
are part of the central, having financial relations with it, and all the 
local banks redeeming in these central agencies, and that they be part 
of it; that there be a connection in the ownership of the stock, and 
therefore a supervision of issues by the higher banks over the lower, 
and that they redeem the notes of the local banks as they come; and 
whenever the amount kept with the banks above the local banks is suf- 
ficient for the notes to be redeemed, let the amount of issue go on ; there 
should be no limit to it, except the limit of safety, and that the banks 
above, in other words, the capital and the general interests involved, 
shall decree. 

And I would have, as a check upon what might be called a fraudu- 
lent effort, or an injudicious effort, to issue notes out of all proportion to 
the safety of the situation, that the notes of the local banks shall have 
upon them the signature of one officer of the bank above, that is the , 
redeeming agency, so that they will know exactly how much issue there 
is being made relatively to the assets, etc.; and if they have any proof 
as to inordinate issue, they will at once have the matter looked up and 
refuse to put their names on their notes. In that way the circulating 
notes of the smaller banks in the country would be directly supervised 
by the banks of larger capital in the cities. 

I observe that there has been some objection raised several times to 



218 NATIONAL CURRENCY AND BANKING SYSTEM. 

any idea of banks assuming a responsibility other than their own. It 
should be true that while banks are business concerns, they are not 
quite private concerns. They are so social in their character that 
society has a right — and the very fact that you are going to legislate 
upon them presumes that right — to insist that the business shall secure 
its own solvency, and that the Government shall not be called upon, 
nor shall it call upon the Government. In that way will be obviated 
what is really the objectionable element, namely, the arbitrary regula- 
tions by which the whole banking capital must be held responsible to 
redeem the notes. 

Mr. Carlisle's idea of collecting a tax, and collecting it more and 
more to enable the Government to redeem the notes of solvent banks, 
seems to cover that. The Baltimore plan seems to suggest just the 5 
per cent, and then if there is not enough in this fund the Government 
shall foot the bill, so as to make the Government a part, and in some 
degree a sort of sponsor for the solvency of the banking system, which 
I think ought not to be the case. The banking capital of the Govern- 
ment ought to be responsible for the solvency of its own business, and 
it seems to me that if that were the case the very self-interest of the 
large capital interested would be such that through the interrelation 
of the central banks and redeeming agencies with the banks of issue — 
and the banks of issue, you know, are all country banks, not the city 
banks — the interrelation of the two will give them sufficient super- 
vision, knowing their responsibility, to stop wide of inflation, knowing 
that they will have to pay the penalty themselves if it goes too far. 

I think under this plan you will have at least the possibility of econ- 
omy in expenses, with no tax on the circulation other than the business 
necessities of the working of the thing demand, just as is the case with 
the manufacturer in running his factory. If there is a penny to be 
saved anywhere by a new method to be adopted, then those who are 
running the factory have an interest in stopping the expense, and 
every such economy will tell, of course, upon the cheapness with which 
the money can be supplied and upon the rate of interest. 

low, it seems to me there can really be no doubt about the fact that 
under such an arrangement the country bank could issue its notes at as 
low a rate of interest practically as the bank that simply loans its 
deposits, because it would loan its own notes, and it would loan them 
on the title to property in its own neighborhood and cancel them when 
they came in, so that the only cost to them would be the cost of run- 
ning the machinery; and the limit to the amount would be checked by 
the self interest of those who have still more at stake than those below. 

Issuing only up to 50 per cent of yOur capital, when you could profit- 
ably loan twice that much, and having in addition to that 30 per cent 
on deposit of your circulation, is just adding to the cost of every dollar 
that goes out unnecessarily, and adding, therefore, necessarily to the 
interest that must be collected for the work done. 

There was one question asked yesterday morning, and I will antici- 
pate it now. Somebody said, Do you think the national banks would 
organize under a plan under which they were jointly held responsible 
for the circulation? I think it was Mr. Butler said he did not believe 
they would. He finally said he did not think there was any risk about 
it, but he would not advise his bank to do it. 

I also think Mr. Horace White rather thought that the banks would 
not organize under it. Now, the attitude that I think we ought to take 
upon that is to say, "Look here, banks, yon get privileges over the 
community; we will make you organize under it, if you are going to 



NATIONAL CURRENCY AND BANKING SYSTEM. 21$ 

do this business at all; you can not simply ask all the privileges and 
object to do that which is necessary to give efficiency to this system 
throughout the country." If we are clear — and of course that is the 
first thing to fix— if we are clear that that would be an advantage to 
those who really need the money and that it would certainly give a 
better opportunity for profit in issuing money, if it is clear that that 
would be a more efficient and more strictly business-like method of 
banking than having a few banks that do not need to issue money at 
all, and who simply say, "We do not need to issue; we have deposits 
enough, and we decline to come in," then let us simply say, "Gentlemen, 
you are in no such position, and we won't have any such nonsense about 
that; if you want to come in on the pure idea of getting all and lose noth- 
ing, stand all the chances but refuse responsibility, you must go into 
the railroad business or the shoe business or into the business of mak- 
ing steel rails." 

Mr. Johnson, of Ohio. Where you have no chance to lose? 

Mr. Gunton. The money business is very strikingly a societary affair, 
and therefore I should say I would tax, and although the constitution- 
ality of taxing banks may be disputed, we are doing it and seem to have 
the power to do it; and therefore I say I would put a tax of 10 per cent 
on the circulation of all banks that refuse to come in. 

Mr. Warner. Refuse to have any circulation? 

Mr. Gunton. Yes; and that ends that. I would put a tax of 1 per 
cent on their deposits and 1 per cent on their loans on their deposits. 
That would make them come in. 

Now, I do not believe that there is anything illegitimate in that. I 
say if it is a scheme that is advantageous to the whole community and 
enables the small banks, the country banks, to really do a safe and 
elastic business, and can really discharge the Government in its rela- 
tions — and I think that is the most important feature of the whole 
thing to me, to get the Government out of the business — I would simply 
say to them: "You can not do a banking business unless you com 
into this affair;" and as to the State banks I would say just the same. 
I would not make a particle of difference; all banks should be under 
that general condition. 

Now, one other suggestion I have to make, and then I shall close. 
The suggestion that I have to make depends upon the question of the 
gentleman who asked Mr. Dodsworth about silver. It is with reference 
to coin redemption and the use of silver in coin redemption. I believe 
that that is a part of the banking system. 

Mr. S perry. I shall be glad to hear what you have to say on that. 

Mr. Gunton. Since I am not a member of the committee, I believe I 
shall not be ruled out, Mr. Chairman, on that. Of course redemption 
should be in coin, silver and gold. 

Now, we ought, in any way we can, to give as liberal a use to silver as 
possible, consistent with safety again. Safety should be the first thing 
in every movement, of course. 

After I received the letter of the chairman of this committee inviting 1 
me to come here, I wrote down a very rough minute or skeleton that 
I thought I would publish in our magazine, and would leave it in the 
hands of the committee so that they can do with it what they may 
desire. In that I have suggested this: That the banks should be per- 
mitted to use silver in coin redemption, and that they should be per- 
mitted to use silver at 10 per cent below bullion value. Now, gentle- 
men, I want to call your attention to this. There you have the privi- 
lege of issuing silver coin at 10 per cent below the bullion value, such 



220 NATIONAL CURRENCY AND BANKING SYSTEM. 

coin, of course, to bear the name and the number to be emitted by the 
Government, as all notes should be emitted by the Government; the num- 
ber of grains and fineness to be furnished, of course; and the name of 
the bank, and, to distinguish it from the standard coin, the word " free " 
should be on; that such coin should be given in redemption at the 
option of the holder; and that such silver coin should be redeemable 
in gold whenever required, in just the same way as the bills. 

Now, my idea is this : That it would give the banks 10 per cent 
advantage, and therefore furnish a motive for sending out silver. I 
believe that what we need is a motive for sending out silver, and then 
it will go out. If you will give capitalists a motive of a percent or two 
they will always work, and they won't work without it. They Avill let 
you drown or starve; if they can't make a cent out of you they will 
desert you. 

Now, if it were said that that 10 per cent upon experiment might 
prove too much, I answer that it is merely the idea I want to suggest 
rather than the fixed amount; that this silver, of course, would be 
ultimately redeemable, and that the banks issuing it would be responsi- 
ble for its redemption in exactly the same way that they now redeem 
their notes, only instead of being all fiat there is only 10 per cent of it. 

If silver should decline, of course it would come in for redemption; 
if it should not come in it will go into the pot; and if it goes into the pot 
we will make more from it. There is no trouble about it. If it comes 
back for redemption it will be redeemed in gold, and no matter how 
much it should decline the banks would only be where they were when 
they were not allowed to issue a dollar; and every dollar's worth of 
silver that can go out in that way as so much property gives so much 
freedom to the use of silver and has behind it just as strict a guarantee 
of safety, or protection, or .security, whatever you like to call it, as the 
notes have. 

I do not pretend to have gone into it and worked out all the little 
proportions and everything; nothing of the kind. I do not pretend to 
know just what, any more than I believe any of you know just what, 
the reserve of a bank should be; none of you know that; nothing of 
the kind. You do not know that any more than you know just how 
many shoes you will have to issue, or ought to issue, in 1900, if you 
are shoemakers. Experience will have to determine that. I do not 
pretend to know where these particular lines should be drawn, but 
what I want to urge is that the general system of monetary affairs and 
banking should be reorganized on some confederated plan by which all 
the different points at issue should be integrated, one with the other, 
in some such general way as we have in our political institutions; that 
the monetary institutions of the country should at least follow the 
general lines of our political institutions, with interdependence of the 
local upon the larger center, and the larger center upon the still larger 
center, so that in the last analysis, in the same way that the United 
States Government stands behind the freedom of every American, no 
matter where he is, the United States banking system should stand 
behind every note that circulates in the United States, wherever it is, 
and that it should be governed by judgment and experience, and the 
penalty paid by the losses of those engaged in the business, and not 
by the Government, and not by the note holders. 

Mr. Johnson, of Ohio. Your plan involves, first, the funding of the 
greenbacks % 

Mr. Gtjnton. Yes. 

Mr. Johnson, of Ohio. And then you propose to turn over to the 



NATIONAL CURRENCY AND BANKING SYSTEM. 221 

banks, national and State, I presume from what you say, the power to 
organize and form themselves into a pool or trust, or whatever you 
choose to call if? 

Mr. Gunton. Yes; call it the most objectionable name you can. 

Mr. Johnson, of Ohio. And except as to the question of printing the 
notes and prescribing some general rule as to how they shall be paid, 
the Government is to have absolutely nothing to do with it? 

Mr. Gunton. That is it, Mr. Johnson, exactly. 

Mr. Johnson, of Ohio. Now, with reference to silver coin, you pro- 
pose, you say, that the customer is not required, on final redemption, to 
take it unless he wants if? 

Mr. Gunton. He has to stand in the same relation to it that he does 
to his note. He can turn it in for redemption and get gold. 

Mr. Johnson, of Ohio. But must he, in the first place, take it if the 
bank offers it to him ? 

Mr. Gunton. No. 

Mr. Johnson, of Ohio. Then it is not a redemption; it is a mere bar- 
gain as to whether the man takes it or not. 

Mr. Gunton. So it is with the note; it is not legal tender any more 
than a bank note. 

Mr. Johnson, of Ohio. But gold is. 

Mr. Gunton. Yes; and gold is the only thing that is. 

Mr. Johnson, of Ohio. Do I understand you to describe the silver 
currency as wealth, consumable or otherwise? 

Mr. Gunton. Certainly it is wealth. 

Mr. Johnson, of Ohio. What kind of wealth is it? 

Mr. Gunton. Oh, it is productive wealth, of course. 

Mr. Johnson, of Ohio. Not consumable wealth ? 

Mr. Gunton. No. 

Mr. Johnson, of Ohio. A bank note is what? 

Mr. Gunton. The same thing. 

Mr. Johnson, of Ohio. Productive wealth? 

Mr. Gunton. Certainly. 

Mr. Warner. Do I understand that you would have the large banks 
in each city prescribe, as it were, the amount of silver currency for the 
banks in the rural districts? Y"H 30UA8 

Mr. Gunton. The redemption centers? 

Mr. Warner. Yes; it would depend upon their judgment as to how 
much the other banks should be allowed to issue. Is that your idea? 

Mr. Gunton. Y r es; that is, that would be some check upon it, but 
not beyond the point of safety. 

Mr. Warner. You would have the few large banks at the centers 
deciding how much currency should be issued by the other banks of 
the country ? 

Mr. Gunton. No; only in this sense, that their signatures are 
required on the notes issued by the smaller banks, which would act in 
such a way as to absolutely inform the officers of the larger banks how 
much the issue is, and give them an opportunity to look them up and 
keep a cautionary eye on them. 

Mr. Warner. You would leave them — the larger banks — to do what 
they thought best? 

Mr. Gunton. Yes; certainly. 

Mr. Warner. Have you any arrangement to keep a bank alive to-day 
when the silver is brought in? 

Mr. Gunton. No ; no more than to keep it alive with reference to 
bank notes. 



222 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Warner. Suppose the price of silver should come down, as it 
has in the last ten years, would you keep the bank alive by redeeming 
the outstanding silver? 

Mr. Gijnton. ~No; the redemption of the silver would be carried on 
on the same basis as the redemption of paper. If a bank feels that its 
silver is a part of its assets as its uotes would have to be paid, so 
silver would have to be paid in the same way. 

Mr. Warner. Then silver is the same as so mauy silver notes out? 

Mr. Gunton. Yes; only it is 10 per cent instead of 100 fiat. 

Mr. Warner. They are silver notes instead of paper notes? 

Mr. Gunton. If you like, only they have 90 cents' worth of wealth 
right in them. 

Mr. Warner. They are silver instead of paper. 

Mr. Gunton. Yes; only they are not silver notes. 

Mr. Haugen. I understood you to say, at the conclusion of your 
remarks, that you wanted the Government to stand behind every note 
issued. 

Mr. Gunton. Not the Government to stand behind at all. I said 
what I wanted was that the banking system should be organized on a 
somewhat dependent relation of the weakest to the strongest, as com- 
pared with our political institutions. I made that illustration simply 
that the United States Government is behind the freedom of each indi- 
vidual citizen, and I said it should be behind all the banking capital 
in the same way. 

Mr. Haugen. But you would have no Government supervision? 

Mr. Gunton. Yes; I would. I think the supervision that is pro- 
vided for in the other bill. 

Mr. Haugen. Somewhat similar to the present supervision? 

Mr. Gunton. Certainly. I do not think there is any need of taking 
off a particle of supervision — that is, let the Government do all the 
policeman work in the thing, but not invest any money, not issue any 
notes. 

Mr. Brosius. I understand that your conception of a sound banking 
system is that it shall be in the nature of an organism? 

Mr. Gunton. Yes. 

Mr. Brosius. You use the words " societary institution." 

Mr. Gunton. Yes. 

Mr. Brosius. I use the word organism to refer to that iu which all the 
parts, good or bad, mutually and reciprocally support each other. 

Mr. Gunton. Yes. 

Mr. Brosius. How would you start an organism of that kind, sup- 
posing you were at the beginning of the banking system, and you had 
but one bank? Could you apply just the same principles to a single 
bank that you do to an aggregation of banks which could not be your 
organism? 

Mr. Gunton. Not to a single bank; a single bank would have the 
disadvantage in that a little misjudgment or a little fraud may circu 
late over such a small area that it may kill the unit. 

Mr. Brosius. Then your principle is only applicable after the organ- 
ism is fully developed and consists of an aggregation of parts which 
can mutually support each other ? 

Mr. Gunton. Yes; and the present banks will constitute the 
machinery for just that organization right away. 

Mr. Brosius. Then, it does not make any difference how many of 
these banks turn out badly, or'how many rogues and rascals they are 
composed of, as long as there is enough of soundness in the entire organ- 



NATIONAL CURRENCY AND BANKING SYSTEM. 223 

isni, iD the aggregation of parts, to meet all the losses perpetrated by 
any number of parts your system stands, does it not? 

Mr. Gunton. Certainly; only it does make some difference how many 
rotten ones there are, because the larger the number of bad ones the 
poorer will be the whole aggregation and the more the whole will have to 
suffer; and therefore that will be an incentive to scrutiny and care all 
the way down to see that there shall not be so many rogues. 

Following is Mr. Gunton's proposed bill, referred to in the foregoing 
statement : 

BILL RELATING TO BANKING AND CURRENCY. 

TITLE: '-To retire the Government's noninterest paying debt, to federalize and unify the note- 
issuing banks of the United States,, to create a national fiscal institution for injuring coin redemp- 
tion on notes passing as money, and to promote the free coinage of silver. 

Be it enacted,, etc. 1. That from and after the first day of March, eighteen hundred 
and ninety-five, no note of the United States shall he legal tender in payment of 
any debt, public or private, hut that all dehts, puhlic and private, shall he there- 
after paid in gold coin for all sums in excess of five dollars, and in silver coin for 
those helow five dollars. 

2. Until March first, eighteen hundred and ninety-five, legal-tender notes shall he 
fundable at par in sums of one hundred dollars and upward in multiples of one 
hundred dollars into United States interminable bonds bearing three per centum 
interest per annum, which the Secretary is hereby authorized to issue, for that pur- 
pose only, in the sum (of three hundred and forty-six million dollars) corresponding 
in amount to the sum of legal-tender notes outstanding; and national-bank notes 
.shall be fundable at par into bank notes authorized by this act. 

3. An annual Federal tax of ten per centum shall be collected by the collectors of 
internal revenue on circulating notes issued by any banker or bank, and an annual 
tax of one-fourth of one per centum on all deposits of any bank, and a further annual 
tax of one-fourth of one per centum on all loans made and commercial paper bought 
by any bank which shall fail to organize as a branch of the Federal Union of Asso- 
ciated Banks of the United States herein provided for. 

4. The Federal Union of Associated Banks shall consist of four grades of institu- 
tions for banking, namely, local, metropolitan, State and a bank of the American 
union. Local banks shall consist of such as have a capital of not less than fifty thou- 
sand dollars nor more than two hundred and fifty thousand dollars, but every local 
bank shall be a branch of some metropolitan bank. Metropolitan banks shall con- 
sist of such as have a capital of not less than two hundred and fifty thousand dol- 
lars, but every metropolitan bank shall be a branch either of some State bank or ot 
the bank of the American Union. A State bank shall have a capital ol one million 
five hundred thousand dollars or more, and shall be a branch of the bank of the 
American Union. 

The Bank of the American Union shall have a capital of one hundred million dol- 
lars, of which one-fifth shall be paid in gold coin and four-fifths in national bonds 
of the United States at par, in British consols at par, or in bonds of American cities 
having more than one million population, and shall be composed of such metropoli- 
tan and State banks as shall become stockholders in it and shall be represented in 
its board of directors, and of such other persons and corporations, public or private, 
as shall subscribe to its stock. It shall be the chief depository of the Government 
moneys. But so far as Government convenience may require other depositories they 
may be the State and the metropolitan banks. 

5. Each branch bank shall become a member of the bank next above it in grade 
by investing one-fifth of its capital in the stock of such bank of higher grade, and 
its president shall be entitled to be one director therein: Provided, That all the stocks 
held by branch banks in any bank of higher grade shall not exceed a third of the 
total stock of such higher bank and shall be abated in the degree required to keep 
the aggregate at one third, and every bank of higher grade shall subscribe for and 
own reciprocally a block of stock in the bank of lower grade equal in par value to 
the stock which the latter owns in the former. 

6. A third of the directors of the Bank of the American Union shall be presidents 
of the State and of the metropolitan banks. 

7. The Bank of the American Union shall redeem, in coin, the notes of all State, 
metropolitan, and local banks, and each bank of higher grade shall redeem, in coin, 
on demand, all notes of lower banks, which are its branches. To protect each in such 
work of redemption it may require its branch bank to maintain with it a satisfac- 
tory deposit, and on failure of such lower bank to protect such work of redemption 
the prosecuting bank may have a receiver appointed therefor by the Federal court 
and press its claim for reimbursement in coin for past redemptions to liquidation 



224 N . I [( M U I I RKJ M D BANKING 3Y8TEM 






hol<l. 

Iml t III 

l-bankin^ 
■ 

im-il to li;i 
• !i with the Cumptrollei of tin ill that r< 

ami -• 
ami thi 
■ 

Wh.Miln c million dollars of tl id iiit«-rmii 

Billion dollars «»i capital in the I 

' ing bank-, or h\ bank- i 

b, and when all the Government notes presented to the Fq 

i substitution bj their own bank notes shall have been su 
i he I United ed, mid 1 1 

by th toed their own bank notes in lieu then troller 

of tli. mular letter declaring I 

ing herein provided for to be in fnll operation, and thereupon all bo 

deposited with such Comptroller to Becure the redemption of nai 

i in mil in tin- _ them, and the 

far as the same have been returned to 
them, shall be surrendered to the Comptroller and destroyed. 

11. etropolitan, and local bank 01 undei th il be 

deemed read; to issue notes under the same when it 6uaJl I 

ted with the Comptroller of the Curreucj I'm on a mum in I 

tender note if the same proportion to the volnn tenders 1 

as the oapital of Bitch bank bears to the total capital of all the bat 

ned to be confederated under this system, to be certified by the 1 onj 
the t urrency; and shall be ready : and loan deposits under the same 

both the < omptroller of the Currency and the chief officer of the - 
department of the stair in which such bank is located shall certify that it 
in and invested insecurities iry to both such departs 

which it proposes to be based, pursuant to the lawaofanch 8tate relative to the 
in\ estmen itnl ing the capital. 

11'. The Bank of the American Union shall havepow< 
to issue drafts to and receive deposits from residents and governments of Toi 
and to establish branches and offices in foreign i>m -t>. w itli capital of I 
of which a part shall be subscribed b\ tin resident banks and merchants "t the 
oountriee In which Mich foreign branches shall be located m- with which th< 
bnsii I- 

18. The Government of the United States, through its Comptroller of theCurri 
shall have charge of the printing and distribution of all bank notes to be ic 
under this >mptrollerof the Currency shall deliver the notes 

be determined by the 1 1 ly, to the il banks, with 

proper spaces prepared for the signatures of at least two of the the bank 

ig it, and of on< if the higher grade of banks of which it is a branch, all 

of whom shall sign it in fore it shall become the note <»t' the bank; and shall 1 ■ 
Buoh ay, with the denominations and quantitb 

1. to the Comptroller of the Currency. 
1 1. The Comptroller of the Currenoj shall publish daily and be prepared to respond 
ph momently during business hours of each daj in any inquiries from any 
bank as t" the volume of dulj signed notes issued to any other bank for loanu 
bank notes authorised t>\ this act shall be of different basio col 
to distinguish at sight, whetnei the not ink of the Amei 

; opolitan, or local bank, to wit : 
or of the notes of the Bank of the American Union shall be gold or 
w . 

thai] be n 
ml i tan banks shall be pink, violet, or i" 1 
or of the n< -. i \ er or 1 fa 

hall be the promise of the bank 
of liars, in coin of K"hl or silver, a< oording to its denoniimttn 

to in- printed in dear ami conspicuous language, unoh 

16. All silver coin, which shall b< 



NATIONAL CURRENCY AND BANKING SYSTEM. 225 

at the option of any bank which is the holder of silver bullion, shall have stamped 
upon it, at the ooet and with the mechanism furnished or paid for by Buoh haul;, the 
name of the bank which procures its coinage and the number of grains of standard 
silver (assayed by the mint) which it contains. 

17. llvciy an oh coin, whether dollar, half dollar, quarter, or dime, shall be dis- 
tinguished from the present standard and subsidiary coin, of which it is the freely 
ooined counterpart by the legal designation " tree," while the present coinage shall 
retain its designation "standard" or " subsidiary, as the fact may i>e. 

18. Every free silver dollar shall contain ninety percent of the quantity of silver 
bullion, as nearly as may be, which the standard gold dollar would buy in open 
market on the day of its issue, and subsidiary coins in the same proportion. 

li». Every hank issuing free silver coins shall he held to redeem the free silver 
coin bearing its imprint in gold coin when presented in sums of live dollars and 
upward. 

SO. Any hank issuing notes of denominations less than five dollars may redeem 
them in tree silver coins when presented for redemption in sums not exceeding rive 
dollars. 

Mr. Walker. If this gentleman lias finished and Mr. Roth well can 
come to-morrow morning-, I shall move that we adjourn. 

The Chairman. That is a matter for the committee to determine. 

Mr. Walker. I move that the committee adjourn. I understand 
that he can come just as well to-morrow morning. 

Mr. Kothwell. I will be in town to-morrow and I can come to-morrow. 

The Chairman put the question upon Mr. Walker's motion, and 
declared that the noes seemed to have it. 

Mr. Walker. I call for the yeas and nays. 

The yeas and nays were ordered, and upon being taken resulted — 
yeas G, nays 7, as follows : 

Teas — Hall, Walker, Brosius, Russell, Haugen, Johnson of Indiana. 

Nays — Springer, Sperry, Cox, Cobb of Missouri, Warner, Johnson 
of Ohio, Black. 

So the motion to adjourn was rejected. 

STATEMENT OF RICHARD P. ROTHWELL. 

Mr. Richard P. Roth well appeared before the committee and made 
the following statement: 

The Chairman. You may please state your occupation. 

Mr. Rotiiwell. I am mining engineer, and editor of the Engineer- 
ing and Mining Journal, New York. 

I desire to call the attention of the committee to a few points which 
seem to me to be important in the propositions that have been made 
in the Baltimore plan and in Secretary Carlisle's proposed bill, and 
which may not have attracted much attention. I do not wish to go 
into the details which are properly the function of bankers, and to be 
considered by them from their experience, for I am not a banker, but I 
am simply a student of finance and a business man. 

The first point that I want to make in regard to the plan of Secretary 
Carlisle is that it is a measure of large inflation. I have jotted down a 
few notes here that I will give as explanatory. 

OUR PAPER MONEY REDUNDANT. 

The cause of the persistent gold exports draining the gold reserve is 
redundance in the volume of paper money. 

The criterion of the state of the paper currency is the character of 
the customs payments at the port of New York. 

The force of financial gravitation attracts any surplus of funds from 
NAT CUR 15 



226 NATIONAL CURRENCY AND BANKING SYSTEM. 

the interior to the banks of New York. Ever since specie payments 
were resumed, January 1, 1879, the New York banks have made cus- 
toms payments in the form of money they held in superabundance. 
Consequently, when their currency holdings are unduly large, customs 
payments are made in paper, and, since our people prefer paper to gold 
in general use, when business calls for the use of all the paper, the 
customs duties are paid in gold. 

For the four years immediately preceding the passage of the Sherman 
Act, in July, 1890, the issues of paper money under the Bland Act of 
1878, minimized, as they were by continuous contraction of the national- 
bank note circulation, were well within the demands of the country for 
paper money. The result was that more than 80 per cent of the cus- 
toms duties at New York were paid in gold. In the fiscal year ending 
June 30, 1890, the proportion of gold in the customs receipts ranged 
between 85.7 per cent in July, 1889, and 93.8 per cent in March, 1890. 

Mr. Walker. Is it his position that paper is preferred to gold by 
the people"? 

Mr. Kotiiwell. In general use, where the two kinds are inter- 
changeable. 

The gold revenue thus received protected the Treasury gold reserve, 
which rose from $186,711,560 on June 30, 1889, to $190,232,405 on June 
30, 1890 During these four years paper money was, in fact, more valu- 
able to the banks than gold, as they paid out the gold to the Govern- 
ment and retained the currency for the use of their customers. 

The operation of the Sherman Act quickly brought about a reversal 
of this condition. The percentage of gold in the customs declined at 
once. The way the notes were rejected from the channels of circulation 
is well illustrated by the following statement of customs receipts at New 
York in the month of August, 1890, 1891, and 1892 : 



Tear. 


Percentage 
of gold. 


Percentage 
of Sherman 
Act notes. 


1890 


91.8 
12.8 
12.1 


3.5 


189L 


31.5 


1892 


51.9 







It will be seen that the issues of notes under the Sherman Act were 
larger than the country could absorb in the channels of circulation with 
the result that they displaced gold as the medium of customs pay- 
ments. 

As the Sherman Act made the currency redundant and inspired appre- 
hensions as to our ability to maintain gold payments, the effect was to 
encourage exports of gold. 

NET EXPORTS OF GOLD. 

Years ending June 30 — 

1891 $68,130,087 

1892 495,873 

1893 87,506,463 

156, 132, 423 
Sherman Act notes outstanding June 30, 1893 146, 34 L, 386 

It will be noticed that the country's loss in gold was substantially 
the amount of the issues under the Sherman law. 

As the gold had disappeared from the customs receipts the weight 
of the export movement fell upon the Treasury gold reserve, which 



NATIONAL CURRENCY AND BANKING SYSTEM. 227 

declined from $190,232,405 oil June 30, 1890, to $95,485,414 on June 
30, 1893. 

"^Tlie Sherman Act was repealed and inflation of the currency stopped, 
but the phenomena which preceded the repeal — that is to say, payment 
of customs duties in paper instead of gold and exports of that metal — 
exist to-day simply because the contraction in business resulting from 
the panic and the foreign doubts about the wisdom of our financial 
policy has lessened the demand for currency, leaving the volume still 
redundant. 

The remedy is to retire the superfluity. If this were done customs 
duties would again be paid iu gold, and in all probability gold exports 
would be within very moderate limits, if they would not cease entirely. 

INFLATION UNDER THE PROPOSED PLAN. 

The possibilities of immediate inflation under Mr. Carlisle's currency 
plan can be judged from the reports of the national banks to the Comp- 
troller, October 2, 1894. 

CURRENT LIABILITIES OF BANKS. 

Due to depositors $1, 712, 000, 000 

Due to banks B 527,000,000 

Other - 30, 000, 000 

$2, 299, 000, 000 

CASH HOLDINGS. 

Gold coin and certificates 197, 000, 000 

Silver coin and certificates 40, 000, 000 

Legals 166,000,000 

403, 000, 000 
National bank notes 19, 000, 000 

122, 000, 000 

Thus the cash holdings were 18.4 per cent of the current liabilities. 

As Mr. Carlisle proposes to abolish the compulsory reserve against 
deposits 25 per cent, the whole of this 422 millions of cash holdings 
will be legally released, except a sum equal to 30 per cent upon the new 
circulation. 

The capitaF'sfcock of the existing national banks aggregates 669 
millions. 

The scheme will permit the issue of 75 per cent thereof, being 501 
million of notes upon deposit of 30 per cent of these, or 150 millions in 
legal tenders. 

POSSIBILITY OF SYSTEM WITH EXISTING BANKS. 
INCREASE OF CIRCULATION BY NATIONAL BANKS. 

Bank notes authorized $501, 000, 000 

Assuming no reserve were held hy the national banks, 
deduct: 

National- bank notes to-day $172, 000, 000 

30 per cent guarantee fund in legal tenders 150, 000, 000 

322,000,000 

Possible net inflation 179, 000, 000 



228 NATIONAL CURRENCY AND BANKING SYSTEM. 

It is fair to assume that the banks will use their own notes to meet 
their depositors' calls, holding specie and legal tenders sufficient only 
for current redemptions. 

The business of the country centers in the banks, enabling them to 
dictate the character of the circulating medium in daily use. Self- 
interest will induce them to keep their own notes out, sending the 
Government paper to its creator through the custom-house and sub- 
treasury. As the channels of circulation are already full to overflow- 
ing, it would be only as the Government paper was forced out of 
circulation by the banks that the new bank notes would find room to 
circulate and the banks begin to profit. 

The helpless condition of the Treasury under these circumstances is 
apparent. 

LEGAL TENDERS OUTSTANDING SEPTEMBER 30, 1894. 

Greenbacks $346, 681, 016 

Sherman Act notes 151, 609, 267 

598, 290, 283 
Deduct possible deposits in guaranty fund (say) 150, 000, 000 

In Treasury and afloat • 448, 290, 283 

Mr. Johnson, of Indiana. That is, you mean after deducting that 
which Mr. Carlisle provides? 

Mr. Eothwell. Yes; assuming that the circulation is taken out by 
the national banks, not State banks, it would deposit $150,000,000 in 
the Treasury for the security of the circulation of the national banks 
and would leave $448,000,000 of Government paper afloat. 

The possible inflation of national-bank circulation being 179,000,000, 
the probability is that a large part of these 448,000,000 of legal 
tenders would in time be forced back into the Treasury, making their 
cancellation imperative. 

The 166,000,000 of legals now held by the national banks will permit 
the issue immediately of the maximum of authorized circulation. 

The foregoing covers only the national banks, while Mr. Carlisle con- 
templates in addition the issue of notes by State banks. 

The "Baltimore plan," if similarly analyzed, will be found to be like 
wise currency expansion measures, and this at a time when each dol- 
lar of new paper money must displace a dollar of the existing Govern- 
ment paper. 

To make either system successful the legal tenders must get out of 
the way. 

THE FIELD FOR THE SILVER CERTIFICATE. 

Mr. Carlisle provides that no national-bank note shall be of less 
denomination than $10. If this limitation be also placed on State- 
bank issues, the field for the silver certificate will be quite broad 
enough. 

Silver certificates outstanding September 30, 1894 $339, 676, 504 

Small denominations of paper money: 

One-dollar $39, 988, 823 

Two-dollar 28, 966, 529 

Five dollar 249, 164, 409 

317,119,461 

Excess 22,457,143 



NATIONAL CURRENCY AND BANKING SYSTEM. 229 

These 22J millions are a very moderate sum that a few years of pros- 
perity will enable the country to absorb, and, once absorbed, would 
thereafter be always retained in circulation. 

The question that arises from this showing is that the banks, under 
the Baltimore plan, or under Secretary Carlisle's plan, will have an 
inducement to issue their own notes and keep their own notes in circu- 
lation. Otherwise they would gain nothing, if they have no circulation 
of their own notes. In order to keep them out they w T ill necessarily 
force the Government paper in. At present there is a superabundance 
of paper. That is the reason gold has gone out and that we get no 
gold through the custom-house. The amount of gold is down now to a 
mere nominal sum, it is all paper that is coming in, and as long as the 
business of the community does not require so much money as we now 
have afloat that condition of affairs will continue. The gold will not 
be deposited, it will be exported, owing largely to the fears of the for- 
eigners that we are going to lose our standard currency and to fears 
of our general financial schemes, and owing also to the fact that the 
banks will take in what they deem of least value. 

The Treasury is in this position: That it is authorizing an inflation, 
when its troubles are already due to a superabundance of paper money, 
and it will either have to make provision in the law allowing banks to 
issue circulating notes, a provision that would oblige the banks to 
keep the Government paper out right away — if such a provision can be 
put in the law — that will oblige the banks to keep Government paper 
out, which at the present time would mean that they « ould not issue 
any of their own; or the Government must fund its paper before the 
banks can issue any circulating notes at the present time. There does 
not appear to be any way around it; and, judging from the present 
condition of things, the surest index which we have of that is the 
receipts at the custom-house. 

There is, of course, the very important question to my mind as to 
the ultimate redemption of notes. The Government is bound to redeem 
its notes in gold. We all know that. The banks would have to redeem 
their notes in gold, either directly or by some roundabout process — bet- 
ter directly — otherwise their notes will be at a disadvantage as com- 
pared with Government notes, and they could not get them out until 
the business of the country grew r up to a requirement for a circulating 
medium better than now exists and which would absorb this super- 
abundance of money that we now have, 

Mr. Johnson, of Indiana. That is the difference between 75 per cent 
and 30 per cent? 

Mr. Rothwell. Yes; that difference is inflation. 

Mr. Johnson, of Indiana. The point you make is that there is no 
necessity, no use for that money? 

Mr. Rothwell. There is no use for it now. Paper money is lying 
idle now, and we have too much for the condition of our business. If 
business increased and improved we would use the notes that we have, 
and gold would come into the Treasury through the custom-house. 
But as long as gold is not coming in there, it is an absolute demonstra- 
tion that there is more paper than we require in business; and every 
bank in New York will tell you the same thing, that they are loaded 
down with paper that they can not use. This measure would simply 
add to that, and add to the difficulties of the Treasury, provided this 
money that is proposed to be issued were secured in such a way that 
it would be equally good with Government money. I take it that the 
law would require such conditions for security, and that the money 



230 NATIONAL CURRENCY AND BANKING SYSTEM. 

that the banks would be authorized to issue would be as safe money as 
Government money. In that condition it would aggravate the condi- 
tion of the Treasury. Jt would oblige the Treasury to redeem its own 
paper by loans unless it could force the banks issuing to give prece- 
dence, and then the banks would have to wait for their own circulation 
until the banks of the country grew up to the amount of money we have. 

The question of the ultimate redemption in gold is becoming a more 
and more serious question, for the demand for gold is constantly 
increasing, and it is harder and harder to get. 

Mr. Walker. I understand, then, that you come to this conclusion: 
That the effect of Mi\ Carlisle's scheme, if it works, woiJd be to force 
the Treasury notes and the legal-tender notes back on the Treasury for 
redemption, and that it would require the selling of more and more 
bonds to meet the demand. 

Mr. Eothwell. It certainly will if the bank notes can be made 
equal in value as security; that is, it the people would take them, for it 
is to the interest of a bank to force its own notes into circulation and to 
send home for redemption the notes of everybody else, and primarily, 
the Government notes would be sent in for redemption. 

There is one question 1 desire to refer to, and that is the ability to 
get gold with which to redeem. 

Mr. Black. Let us hear you on that. 

Mr. Eothwell. I do not think that it would be possible for the 
Government to-day to get enough gold to redeem all its outstanding 
notes. The demand for gold is increasing all over the world. Since 
the condition amounting to full legal tender silver has been discon- 
tinued, the demand for gold has grown and there has been a constantly 
increasing demand for it. It is true that the increasing demand and 
the appreciation it has brought have induced a great many to go into 
the business of gold mining, and that the production of gold is increas- 
ing because the value of gold is greater than it was. But there is not 
nearly enough increase in the production of gold, when counted up for 
a long time, to compensate for the destruction of so much of the money 
as was represented by silver when there was a concurrent use of silver 
and gold. 

On the question of the ultimate redemption of our Government obli- 
gations, our paper, our notes, as to what can be paid, if we go to work 
to increase this demand, that has already appreciated the value of 
gold, by asking for U\o or three hundred millions more of it, there is 
no saying where the value of gold will go to. That means that every- 
thing else which is now measured by gold as a sole standard will 
depreciate, and you can have no general prosperity on a constantly 
falling market. 

Mr. Walker. I submit that this question is not on the question 
before us. 

Mr. Ellis. He is talking very sensibly. 

Mr. Eothwell. It is a question of the ultimate redemption of our 
notes. What are we going to redeem them in? 

The Chairman. The Chair thinks the gentleman is in the line of the 
statements of the gentlemen who have heretofore spoken to us. 

Mr. Eothwell. The question xhen is as to the rehabilitation of 
silver. I am a bimetallist; I am not a free-coinage advocate. By 
bimetallism I mean the full interchangeability of the metals. A con- 
current circulation of the two metals can only be secured by an inter- 
national agreement among the principal nations, which would afford a 
market under that agreement for all the silver and all the gold that 



NATIONAL CURRENCY AND BANKING SYSTEM. 231 

might be ottered, at whatever ratio that may be agreed upon among 
themselves. 

This question, of course, brings up the question of bimetallism, 
which may not be within the domain of your commission, but the ques- 
tion of the ultimate redemption of paper circulation is. 

As I have said, I believe in bimetallism, because it is the only means 
that we have of checking the appreciation of the standard of measure- 
ment. But I am thoroughly convinced that bimetallism can not be 
secured in any other way than by international cooperation, with a 
ratio to be adopted. 

My own suggestion has been to make the ratio flexible, to put it 
under the control of such a commission as would necessarily have to be 
brought together under an international agreement — call it the inter- 
national monetary clearing-house — and put the control of the ratio 
between the* metals in the hands of this commission, which would from 
time to time, and slowly and by small degrees, so adapt the ratio to 
the conditions of production as would regulate production; for it is 
certain that the metal that it pays people the best to produce, people 
are going to produce most of; and that is, if the value of gold is increas- 
ing, the people will go into producing gold, and that is why we see 
more gold coming out now. 

As to the value of silver now, there is no market for it. Its price 
has gone down so much that the production has enormously decreased. 
By regulating the ratio you could bring about an absolute stability of 
production. If there were ultimately too much of one metal produced 
to make it possible in the future to redeem it by the other, by chang- 
ing the ratio somewhat, a very little of production would change it, and 
the more abundant would become less abundant, and the less abund- 
ant would become more abundant. So that the control of the ratio is 
an absolute condition of permanent bimetallism, and with that per- 
manent bimetallism I do not see how we are going to redeem our notes, 
or how we are going to have a prosperous future with a constantly 
decreasing value for everything we produce. 

Mr. Walker. You understand that bank notes have a practically 
instant redemption to-day, so that a bank knows exactly what to do 
with its bank notes. They are redeemed by the Government, if not 
redeemed by the bank that issued them. That practically displaces 
them from circulation. 

Mr. Eothwell. As long as the Government has something to 
redeem them with. 

Mr. Walker. That is not my point. The present law requires the 
bank to have something with which to redeem them, so that is no 
answer to the question. The point is that bank notes to-day have an 
instant redemption out of the redemption fund that the bank keeps 
here at the seat of Government. 

Mr. Eothwell. Yes. 

Mr. Walker. Your next proposition is that the Government notes, 
the greenbacks and the Treasury notes, have but one redemption, and 
that is gold, and then the banker can do nothing practically with that 
gold but ship it abroad, because the banks all have as much gold as 
they want? 

Mr. Kothwell. I do not know that, sir. They can not ship it 
abroad until it is wanted there. 

Mr. Walker. They will not take it out of the Treasury until it is 
wanted abroad, because they had as lief hold Government notes upon 
which they can get the gold ultimately? 



232 NATIONAL CURRENCY AND BANKING SYSTEM. 






Mr. Eothwell. But if a superabundance of notes are offered they 
will certainly redeem some of them. I do not hear any of the banks 
complaining of any excess of gold. 

Mr. Walker. You do not quite apprehend my question. There is a 
legal and compulsory redemption of bank notes, if there is any redun- 
dancy those notes must come back to the bank of issue, and if their 
customers are willing to take notes rather than to draw out their depos- 
its from the banks on checks, then the bank can use those notes 
again. If the customers do not want those notes, they have got to lie 
idle in the bank, and that is retirement. That is clear, is it not? 

Mr. Eothwell. Yes. 

Mr. Walker. But if a bank has either the silver certificates, gold 
certificates, or currency certificates, the only thing it can do with them 
is to send them down here to the seat of government, and as long as 
there is no advantage to them in that they can not shi^f abroad the 
silver dollars; they are limited to the gold, because they can sell the 
gold the world over. That is true, is it not ? 

Mr. Eothwell. The Government can reissue them. 

Mr. Walker. I am not talking about what the Government can do. 
When banks find that they have more money than they know what 
to do with, the tendency is to get gold, because that has a price the 
world, over and that increases the embarrassment of the Treasury by 
every dollar of currency that is issued. 

Mr. Rothwell. Exactly. 

Mr. Walker. So that the Carlisle scheme, or any other scheme that 
increases circulation without providing for some method of retirement 
of the certificates, creates the difficulty under which silver labors? 

Mr. Eothwell. Yes, sir; so long as the business of the country does 
not require the circulation, that is true. 

Mr. Johnson, of Indiana. If the banks could use the 30 per cent 
they could just as well use any circulation of banknotes that are issued 
to that extent? 

Mr. Eothwell. Yes; it would allow them to put those out, and they 
would come back to the Treasury. 

Mr. Johnson, of Indiana. My x>oiut is, with reference to your state- 
ment, that there would be an excessive issue of notes, far beyond the 
needs of the community at this time. You state, the margin between 
75 per cent and 30 per cent would be inflation of currency. 

Mr. Eothwell. Yes. 

Mr. Johnson, of Indiana. That would lie idle in the vaults of the 
banks until the expanding business required it; it would not cost them 
anything in the meantime to keep it, would it? 

Mr. Eothwell. I assume they would keep it, and force the Govern- 
ment to hoard it. 

Mr. Johnson, of Indiana. You said they could not use it because of 
the lack of business requirements. 

Mr. Eothwell. It would take the place of Government money that 
is now doing business. 

. Mr. Johnson, of Indiana. It would more than take the place, would 
it not? 

Mr. Eothwell. So much of it would; an equal amount of it would 
take the place of the Government money. 

Mr. Johnson, of Indiana. You mean in the business of the country? 

Mr. Rothwell. Yes. 

Mr. Johnson, of Indiana. And the margin would lie idle until called 
for by business needs? 



NATIONAL CURRENCY AND BANKING SYSTEM. 233 

Mr. Eothwell. Yes. It is to the interest of the bank to get its own 
money out, and if the business of the country does not require any more 
money than is now existing, something will have to come in when it 
goes out, and it is the Government money that will come in. 

Mr. Russell. It will come back for redemption'? 

Mr. Eothwell. It will come back for redemption. 

Mr. Sperry. By what process of reasoning do you arrive at the con- 
clusion that gold has appreciated? 

Mr. Eothwell. As measured by the average values of commodities. 
It is true that this is a very complicated question, for the values of 
commodities depend largely upon other things as well. But statisti- 
cians who have tabulated these matters have come to that conclusion. 
Take our own Aldrich report, and you will see in that the average values 
of commodities. Take the Sauerbach's Index of Values Abroad, and 
you will find that there has been a steady appreciation in the value of 
gold; that it has bought more and more of everything. Take the value 
of the amount of reduction in cost, and there still remains a quantity 
which is attributed to appreciation in gold. The fact that people can 
get more for their gold is, I assume, the principal reason why people 
have gone into the business of gold mining more than they did some- 
time ago. 

Mr. Sperry. What period of time would you put as the time in 
which gold has appreciated! 

Mr. Eothwell. As a commencement of this appreciation? 

Mr. Sperry. les. 

Mr. Eothwell. It has been going on for some years. It has been 
going on since the curtailment of the use of silver as money of equal 
redemption. The demand for silver has declined since 1872 or there- 
abouts — since the Germans began to unload their silver. That has 
lessened the demand for silver, and increased the demand for gold. 

Mr. Sperry. Do you understand that wages, for instance, have 
declined since? 

Mr. Eothwell. No; they have increased. They are an exception 
to to all the other commodities. 

Mr. Sperry. Then, in exchange for labor, gold has depreciated, has 
it not? 

Mr. Eothwell. Yes, as to labor. Labor is not the only one, but it 
is almost the only one, of a very long list of commodities. 

Mr. Sperry. Are there any articles in the line which you have in 
your mind, the reduced price of which could not be sufficiently accounted 
for by other things than by the appreciation of gold? 

Mr. Eothwell. Yes; articles of manufacture — all kinds of manu- 
facture. They have pretty generally gone down. 

Mr. Sperry. As processes of production have cheapened? 

Mr. Eothwell. Yes. 

Mr. Sperry. Does that account, in your judgment, for the deprecia- 
tion? 

Mr. Eothwell. No; the improvement in manufacture and the les- 
sened cost to them would account for part of the depreciation in the 
gold valne of the commodities, but not for all. 

Mr. Sperry. Take our great staples, cotton and wheat. Do you 
regard the price of them as due to the appreciation in the value of gold? 

Mr. Eothwell. Xo; I do not. It is very possible that the appre- 
ciation in gold has its part in it, but the improvement in the means of 
transportation have had more to do with it than anything else. 

Mr. Sperry. Take cotton, for instance, which, I suppose, during the 



234 NATIONAL CURRENCY AND BANKING SYSTEM. 

last three or four years has fallen perhaps 25 per cent in value, and even 
more than that. 

Mr. Rothwell. Yes. 

Mr. Sperry. Do you imagine that gold has appreciated 25 per cent 
in the last ten years'? 

Mr. Eothwell. No; I do not for a moment suppose that the appre- 
ciation of gold measures the value of the depreciation of any kind of 
commodities. 

Mr. Sperry: If gold, in your judgment, has appreciated in value, . 
how do you account for the fact that the earning capacity of gold, 
measured by interest, has depreciated, so to speak ? A gold loan would 
be perhaps much cheaper than ever before. If gold has appreciated, 
how is it that its earning capacity has depreciated? 

Mr. Rothwell. Under uniform conditions, not always clear, the 
question of outside conditions comes in there, just as it does in the value 
of commodities. 

Mr. Sperry. But if you confine your thought to gold alone in a 
series of years, I can not imagine any outside conditions that enter 
into the question. Take all the loans of different nations of twenty 
years past, and the earning capacity of gold has been declining, has it 
not? 

Mr. Eothwell. That has been largely due to the greater stability 
of Governments and the more certainty there is in their repaying their 
loans. 

Mr. Sperry. I mean the interest- earning capacity. 

Mr. Eothwell. The interest is lessening, because you have a 
greater certainty of getting your money back than you formerly had. 

Mr. Warner. And there is less insurance? 

Mr. Eothwell. Yes. When you tabulate a whole series of articles 
you will find, after making proper allowance for all the elements, so 
far as we can measure them, that there still remains a certain amount 
of depreciation in the value of other things that is due to apprecia- 
tion in gold; at least we know no other reason; and the practical 
proof of it is that everybody is going into gold mining. Why? Not, 
certainly, because gold is not worth any more than it w T as, but 
because it pays them better to go into it. It is worth more. You can 
buy more with it. 

Mr. Sperry; That has occurred within the last year, I suppose? 

Mr. Eothwell. No; it has been going on for a great many years. 
The increase of investment and the increase in output have been going 
on for a number of years, but the increase of investment and searching 
for mines has been going on. Take the great house of the Rothschilds; 
for years they have been investing in gold mines, but they do not 
invest in silver mines. 

Mr. Sperry". If gold is appreciating and growing scarce, relative to 
the demand 

Mr. Eothwell. It is growing relatively scarcer, but the output is 
increasing from year to year, and therefore it is absolutely increasing 
in quantity. But it is, relatively, compared with the duty that is put 
upon it, decreasing. 

Mr. Sperry. Still it is so abundant, relatively, that it can be borrowed 
now cheaper than ever before, and it is more freely offered to borrowers. 

Mr. Eothwell. No, you have to give a proper factor clue to increased 
civilization and probity in that. Those are elements in the value of 
the rate of interest. 

Mr. Sperry. Now, another suggestion you made was that you think 



NATIONAL CURRENCY AND BANKING SYSTEM. 235 

gold is riot sufficient in quantity to meet the exchanges of the world 5 is 
that correct? 

Mr. Both well. That it is not alone sufficient to meet the demand; 
that there is a greater demand than there is a supply? 

Mr. Sperry. Regarded as a single money metal there is not a suffi- 
cient amount necessary for the purposes of money? 

Mr. Rothwell. You could, perhaps, get along without any gold at 
all, if you had the machinery arranged for that; but at the present 
time the demand for gold is greater than its supply. 

Mr. Sperry. Do you mean by that that the gold is so scarce that 
the Government can not afford to redeem the greenbacks with gold at 
the present time? 

Mr. Rothwell. I think if you ask for $400,000,000 that is necessary 
for putting away $150,' 00,000, the security for this issue that they are 
proposing, I feel very certain that the price of gold would go up and 
the prices of everything else would come down. 

Mr. Sperry. Would you have all paper money redeemed by the 
Government all at once, in one day? 

Mr. Rothwlll. I say if you wanted to redeem it in gold now? 

Mr. Sperry. That is, all in one day, when they will have to have 
three or four hundred millions to do it. 

Mr. Rothwell. Yes; and that demand would enormously increase 
the profits of gold. 

Mr. Sperry. It has been suggested by one of the witnesses that 
.$10,000 of greenbacks will take $100,000 of gold out of the Treasury. 
Now, would not that same process result in gold being in the condition 
that, if the Government redeems the $10,000 of greenbacks and puts 
out gold, in a short time the Government will receive that gold back 
again through the custom-house, and will have it in hand to redeem 
another $10,000 with? 

Mr. Rothwell. I do not understand your question. 

Mr. Sperry. The Government receives dues through the custom- 
house? 

Mr. Rothwell. Y^es. 

Mr. Sperry. If, in the redemption of these greenbacks, it reduces 
the redundancy of paper currency, it again receives the gold the same 
as before ? 

Mr. Rothwell. Certainly; it will just as soon as it reaches that 
point where there is no redundancy; where there is a demand for the 
paper that is true; but I say, assuming that the banks put out an 
amount equal to the Government issues, and that there was no demand 
for that amount, or for almost that, the Government issues would come 
back. 

Mr. Sperry. Are you assuming that the bank issues would be 
receivable at the Treasury for customs"? 

Mr. Rothwell. No; 1 think it would be to the interest of the banks 
to put the Government paper in through the custom-house and have it 
redeemed. 

Mr. Sperry. The Government receives, perhaps, $1100,000,000 a year 
through the custom-house, and you gave figures for the year 1889, I 
think, of 85 per cent as being received in gold, 

Mr. Rothwell. Yes. 

Mr. Sperry. Now, If you could place our monetary situation in the 
position in which it was in 1889, the Government would receive 
$85,00i).0()0 a year in gold? 

Mr. Rothwell. Yes. 



236 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Sperry. And, if it had that much surplus, it could redeem 
#85,000,000 of greenbacks every year? 

Mr. Eothwell. If it had that surplus; yes. 

Mr. Sperry. So that it would not require very much actual gold to 
redeem the paper money, would it? 

Mr. Eothwell. If you always had a surplus; but the point is that 
it does not ever keep enough to make these redemptions; it is just the 
other way. 

Mr. Sperry. The quantity of gold, I mean, depends more upon the 
reserves in the Treasury, does it not, than it does upon the outstand- 
ing paper currency? 

Mr. Eothwell. I beg pardon. 

Mr. Sperry. The amount of gold depends more upon the surplus in 
the Treasury than it does upon the actual amount of paper outstanding ? 

Mr. Eothwell. I assume that if there is a superabundance of paper 
outstanding the Government will not have a surplus of gold in the 
Treasury, but with paper one could secure gold until there is no 
superabundance of paper. 

Mr. Sperry. But when you stated that there is a scarcity of gold 
you seem to carry to the committee the idea that the Government 
could not redeem its outstanding circulation because of the scarcity of 
gold; that, perhaps, $400,000,000 would be required. 

Mr. Eothwell. Yes, if it had to do it at first. 

Mr. Sperry. Is not this true: That the Government could redeem on 
a very small amount of gold, carrying the redemption over a period of, 
two or three years, provided the custom-house receipts were paid in gold 
instead of paper 1 

Mr. Eothwell. And that they exceeded its requirements'? 

Mr. Sperry. Exactly. 

Mr. Eothwell. Certainly; but those are conditions that do not exist 
with a redundant currency. 

Mr. Sperry. Those were the conditions that existed in 1889, accord- 
ing to your testimony. 

Mr. Warner. Was the currency redundant in 1889? 

Mr. Eothwell. No; it did not become redundant until 1890— until 
after the operation of the Sherman Act. 

Mr. Sperry. When did the scarcity of gold become apparent ? 

Mr. Eothwell. In 1891. The receipts through the custom-house 
began to be made in paper, in Sherman bills, not in gold; then it ran 
down from 80 or 90 per cent to 12 per cent. 

Mr. Sperry. Your view is that gold became scarce in 1890; is that 
correct? 

Mr. Eothwell. In the custom-house, yes. 

Mr. Sperry. I was speaking of the scarcity of gold as a general 
proposition. 

Mr. Eothwell. Eo ; it was elsewhere, but the people will always 
give the money that they think is of the least value, and they were 
afraid that the paper money out would be redeemed m silver, aud so 
they preferred to keep gold and pay in paper money. 

Mr. Cox. I want to come back to the proposition about banking. 
Your argument against the Secretary's bill I should like to have in a 
nutshell, if I can get it. As I understand it, your theory or reasoning 
is that it puts out more paper money? 

Mr. Eothwell. Assuming that the banks make their issues. 

Mr. Oox. It puts out more money. Assuming that it is taken out 
under the plan suggested, then you come to the conclusion that if the 



NATIONAL CURRENCY AND RANKING SYSTEM. 23? 

banks Lave not taken out that additional money they will have more 
paper money than they can use. Then they take the legal-tender notes 
and convert them into gold to hold. Is that the theory? 

Mr. Rothwell. They will return the legal-tender notes to the Treas- 
ury, and they will circulate their own notes instead. 

Mr. Cox. The idea is to return the legal-tender notes and get rid of 
them, to make a place to get out their own ? 

Mr. Rothwell. Yes ; otherwise they can make no money. 

Mr. Cox. In that view of the case, you think, by returning the legal-- 
tender notes, so as to make a place for their own, it will increase the 
demand on the Treasury for gold? 

Mr. Kothwell. Exactly. 

Mr. Cox. That is the idea? 

Mr. Rothwell. That is it exactly. 

Mr. Johnson, of Indiana, moved that to-morrow (Friday) evening, 
December 14, at 7.30 o'clock, the committee meet in executive session, 

Mr. Russell moved to amend by makiug it Saturday evening instead 
of Friday. 

Mr. Cox accepted the amendment. 

The motion as amended was agreed to. 

Thereupon, at 4.52 o'clock p. m., the committee adjourned until 10 
o'clock to-morrow morning. 

Committee on Banking and Currency, 

Friday, December i4, 1894. 

The Committee met at 10 a. m. 

Present: The chairman (Mr. Springer) and Messrs. Sperry, Cox ? 
Cobb of Missouri, Culberson, Ellis, Cobb of Alabama, Warner, John- 
son of Ohio, Black, Hall, Walker, Brosius, Henderson, Russell, Hau- 
gen, and Johnson of Indiana. 

The roll was called. 

The Chairman. Mr. Pratt, of Baltimore, who was expected 

Mr. Walker. Before Mr. Pratt comes before us I wish to have the 
record of the last meeting read ; I mean of the meeting last evening. I 
was absent, but I understand that the committee held a meeting after 
the hearing adjourned; that there was a meeting of the Banking and 
Currency Committee and some action was taken. I get from the Post 
of this morning the following : 

The programme of the committee was decided upon at an executive session held 
after the hearing had been concluded. The Democratic members will meet to-night 
to discuss the reporting of the Carlisle bill, and it is expected that the measure will 
be agreed upon in its entirety. This action will be reported to a meeting of the 
full committee, to be held to-morrow evening, and then the bill will be submitted 
to the House on Monday. The Republicans have been notified to prepare their 
minority report by that time. 

Now, I would like the record read which shows that. 

The Chairman. The Chair will state what occurred. 

Mr. Walker. I prefer to have it from the record, if the committee 
has taken any action. 

The Chairman. The record is upstairs, but I will state what it was, 

Mr. Walker. Very well. 

The Chairman. A motion was made that the committee meet in exec- 
utive session to-morrow night, Saturday night, at half-past 7 o'clock^ 
and I gave notice to the minority members that the Democratic members, 
would meet at half-past 7 in this room for consultation. That was all 
that was done. 



238 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Gox. 1 want to get this exactly right. I made a motion that we 
meet at half past 7 and proceed with this matter to-morrow night; 
thereupon the gentleman from Connecticut (Mr. Eussell) moved that 
the regular meeting of the committee be on Saturday night at half-past 
7, skipping over to-night. 

Mr. Walkee. Then your motion was for to-night? 

Mr. Cox. Yes, sir; it was that we should meet night after night, 
and Sunday, too, if necessary. That motion was made by Mr. Eussell, 
and thereupon the chairman, after the committee was discharged, 
requested the Democratic members to meet here. 

Mr. Walker. Do you mean to say there was no vote taken ? 

Mr. Cox. JSo; that was a caucus, or you may call it what you please. 
Mr. Johnson was here, and we tried to get him to come in to-night with 
your folks, and he said no, and then I said we would meet to-night. 

The Chairman. The only action of the committee is that there would 
be an executive session to-morrow night. 

Mr. Johnson, of Indiana. That grew out of the fact that you gentle- 
men had agreed in your minds what to do and our presence here would 
not have helped the thing any. 

Mr. Cox. I will say I did not name it to a single gentleman on the 
committee until I made the motion. 

Mr. Johnson, of Indiana. I simply suggested that that would accel- 
erate the thiug'on Saturday night, as the majority would be prepared to 
report to the lull committee. 

Mr. Cox. I hope the gentleman is correct, and we will be able to 
agree. 

Mr. Walker. I want to move that that vote passed be reconsidered. 

Mr. Cox. I raise the point of order on that. There is no notice of it 
at all. 

Mr. Walker. But it is open to reconsideration. I ask the Chair if 
I am in order? 

The C II airman. You are in order. The gentleman was not present 
to vote upon the subject and has voted neither way, but we will waive 
that. 

Mr. Walker. I believe that if I did not vote in the affirmative I 
have the right to make the motion. I want to say that this committee 
has been in session for eight or ten months. The exigencies to-day 
are not increased one iota from what they have been every day during 
the eight months. In fact, the situation is not as serious to-day, for 
we have over $100,000,000 in the reserve fund in the Treasury. 

The Secretary has testified that the bill will not practically affect 
the Treasury Department of this Government for five years, and may 
not for twenty, and now this haste in action upon a bill reported here 
by the Secretary, which, upon his own testimony, he had spent no time 
in preparing or considering, I mean the actual drafting of the bill, say- 
ing that he had dictated a part of it to his stenographer the morning 
lie came here, and it was handed in to us afterwards as a bill that ought 
to be most thoroughly and seriously considered; and I submit that this 
♦committee, if it proposes to report a bill to the House on as great a 
matter as this, such a bill ought to be one that can be enacted as it is 
reported, and we have no right to report a bill that we ourselves think 
should be amended in any respect. 

It ought to be complete. That is what this committee is for — to 
draw a complete bill, and draw it as carefully as possible, and have it 
&S complete as possible, and it can not be done in less than a week. I 
submit that there is not a man living in this country, I care not who 



NATIONAL CURRENCY AND BANKING SYSTEM. 239 

or where lie is, who can start originally, as the Secretary of the Treasury 
testified here he started, and draw a bill under the present circum- 
stances and conditions of the finances of the Treasury and the currency 
of the country, and draw it in a week, so it is fit even to present to this 
committee so that the members of this committee can take it up and 
perfect it. I am not going to talk against time, or endeavor to cause 
any delay. 1 lay the whole case 

Mr. Cox. I want to call your mind to the proposition that there is 
no information that I know anything of — I mean such as comes offi- 
cially from the committee — as to what will be done with the bill. 

Mr. Walker. J will get to that in a moment. I wish to call the 
attention of the Chair to a point, and then I am done. I shall not 
detain the committee, or interfere with it or obstruct it, or talk against 
time, or anything else. I say that the committee ought to enter upon 
the consideration of any bill whatever without any limit as to time, 
and proceed as rapidly as they well can and perfect it: and when it is 
perfected, which will take over a week, or, as every gentleman on this 
committee knows, however seriously and expeditiously we may deter- 
mine to act, that it is not becoming, that it does not compliment the 
legislators, it does not compliment Congress, of which we are a part, 
to have this undue and unseemly haste. 

The Chairman. The question is upon the motion of the gentleman 
from Massachusetts to reconsider the vote by which the committee 
determined to have an executive session to-morrow night. 

Mr. Walker. I ask that the vote be taken by names. 

The roll was called and there were — yeas, 3; noes, 7. 

So the motion was not carried. 

Mr. Johnson, of Indiana. I want to say right here, so there will not 
be any misunderstanding in regard to this matter, that the suggestion 
made by myself last evening, that the majority of the committee should 
meet on Friday night, and that if they desired after that we should 
have a general meeting on Saturday night, at which we should consider 
such a plan as they might agree upon, was predicated, as I stated then, 
upon what I saw to be the .very great desire for haste upon the part of 
the majority of the committee, and upon the theory that ] supposed, 
from what I had seen and heard, they had virtually agreed in their own 
minds upon a bill, and probably would be disposed to report it on Sat- 
urday night if they had a meeting on Friday night. In other words, I 
was not hastening the consideration of this bill. I was simply submit- 
ting to a necessity. It is my own opinion these hearings should be 
continued still longer and this subject should be considered carefully. 
I think it is a great mistake to report in this way, and I do not want 
to be put in the attitude of accelerating the hearing. 

The Chairman. The Chair desires to state that Mr. Enoch Pratt, 
who is a gentleman of some years, was invited to be here this morn- 
ing, but has not appeared before the committee, and the Hon. A. J. 
Warner, of Ohio, addressed a letter to the chairman, in which he 
requested the privilege of appearing before the committee as a repre- 
sentative of the American Bimetallic League, to enter his objections 
against the passage of any of the proposed bills. Mr. Warner is now 
present, and if it is the pleasure of the committee I will introduce him 
at this time. If there be no objection, Mr. Warner will take the stand. 

Mr. Warner, of Xew York. Before Mr. Warner, of Ohio, takes the 
stand, in behalf of my colleague, Mr. Tracey, I hand the chairman the 
following letter, which I suggest be made a part of our minutes : 



240 NATIONAL CURRENCY AND BANKING SYSTEM. 

National Commercial Bank, 

Albany, N. I., December 8, 1894. 
Dear General Tracey: Noting Mr. Carlisle's plan for national-bank notes, I 
desire to make a suggestion. 

His plan limits the issue to a percentage on the capital stock, ignoring the surplus. 
My suggestion is., why not permit an issue upon the capital and surplus under cer- 
tain conditions, as, for instance, that the bank should be restricted from disposing of 
its surplus while it had notes issued against it, thus making the surplus of the same 
value as the capital stock for this purpose. 

If you could obtain Mr. Carlisle's attention I think this suggestion would be 
"worthy of his consideration, and would secure the support of the strongest banks, 
which, of course, are those which have the largest surplus. 
Yours, very truly, 

Robert C. Pruyn, President. 
Hon. Charles Tracey, 

House of Representatives, Washington, D. C. 

The Chairman. I have also, if Mr. Warner will pardon me a 
moment, a communication from the Honorable Charles S. Fairchild, in 
which he states : 

New York, December 12, 1894. 

Dear Sir : I telegraphed you to-day that I should not be able to meet your com- 
mittee to-morrow. 

I have been partially laid up with a cold for several days, and yesterday was kept 
in bed all day with it. In any event I should not be able to leave before the mid- 
night train to-night, and as my cold still persists, I do not think it prudent to run 
the risk of exposure. 

I thank you very much for the invitation, and greatly regret that I can not meet 
the committee. 

I fear, however, that I could add nothing to what you already have heard which 
would be worth taking your time. 

Very truly, yours, Charles S. Fairchild. 

Hon. Wm. M. Springer, 

Chairman, etc., House of Representatives, Washington, D. C. 

The Chairman. I have also a letter from the Honorable Henry W. 
Cannon, formerly Comptroller of the Currency, who was invited to 
appear before the committee, in which he says : 

The Chase National Bank, 

New York, December 13, 1894. 
Dear Sir : Referring to your request of the 7th instant, asking me to appear before 
your committee to-day for the purpose of giving such information as I might be able 
to furnish in reference to banking and currency, and our telegraphic correspondence 
relating thereto, I regret to inform you that I now find it impossible to go to Wash- 
ington either to-day or to-morrow, and inasmuch as I have no particular suggestions 
to make, I presume my presence will not be essential to the work of your committee. 
I am, yours, very respectfully, 

Henry W. Cannon. 
Hon. William M. Springer, 

Chairman Committee on Banking and Currency, Washington, D. C. 

The Chairman. I have also received a telegram from Mr. John E. 
Walsh, president of the Chicago National Bank, who was invited to 
appear before the committee, in which he states he had communicated 
his views on the subject to Comptroller Eckels, and requests that these 
be taken in lieu of his presence, as he is not able to appear at this 
time. This is a very short communication, and I will just ask that it 
be incorporated in the hearings. 

Chicago, III., December 10, 1894. 
Am much obliged for your suggestion ,but it will be impossible for me to leave 
Chicago this week. You will find my views expressed in a letter to Comptroller 
Eckels, written a few [days] ago. May I ask you to be kind enough to look it over? 

John R. Walsh. 
Wm. M. Springer, 

House of Representatives, Washington, I). C. 



NATIONAL CURRENCY AND BANKING SYSTEM. 241 

November 17, 1894. 

I am opposed to the so-called Baltimore plan for a new system of national cur- 
rency, first, because it does uot provide adequate security for the notes; second, 
because it throws on the Treasury of the United States the burden of redeeming 
notes of failed banks when the security for that purpose is insufficient; third, 
because I believe our people will never accept the notes of any bank not properly 
secured. This Baltimore plan is nothing but a revival of the old New York State 
safety-fund plan, a system which was abandoned long before the organization of 
any national banks. Without the assurance that the United States Treasury would 
redeem the notes of failed banks the proposed currency would not be taken at par 
in all sections of the country. 

Notes of well-known banks in New York, Chicago, St. Louis, and other financial 
centers would be received, but the notes of small banks in the far West and out of 
the way places in the East would only be taken at a discount, thus restoring the 
old system ol stump-tail currency. I do not see why the Treasury of the United 
States should guarantee the notes of any bank. It may be said that the Treasury 
would never be called upon to make this guarantee good. Possibly this might be 
true in prosperous times, but if the guarantee exists you may depend upou it that 
the amount of security provided to be used before the Treasury was called upon 
would be exhausted in hard times, thus making the Government practically a cred- 
itor of a lot of failed banks. 

In my opinion the proper way to deal with the currency is for the Government to 
issue an irredeemable 2\ per cent bond which could be made the basis of circulation 
for national banks up to the amount of their capital. As this currency is taken out 
the greenbacks could be withdrawn. This would put the Government out of the 
banking business at once and provide a currency that would be at par everywhere. 
I believe that the Government should fund all its obligations in bonds of the kind 
mentioned, but this is another question. You may depend on it that no matter what 
theorists tell you the so-called Baltimore plan will never pass Congress, and even 
if it should, it would not accomplish what its well-meaning friends have in view. 
It would not work. 

Yours, truly, John R. Walsh. 

Mr. James H. Eckels, 

Comptroller of the Currency, Washwgton, D. C. 

Mr. Warner, of Ohio, will now make his statement before the com- 
mittee. 

STATEMENT OF MR. A. J. WARNER, OF OHIO. 

Mr. Warner said : 

Mr. Chairman and gentlemen of the committee: A proposition like 
that now before this committee, which contemplates a radical change 
in the monetary system of the country, necessarily attracts a deep 
interest on the part of the whole people. I can not begin what I have 
to say in any better way than to read a single sentence from the speech 
of Sir Robert Peel, when he brought before Parliament the act of 1844. 
He said : 

There is no contract, public or private — no engagement, national or individual, 
which is unaffected by it. The enterprises of commerce, the profits of trade, the 
arrangements made in all the domestic relations of society, the wages of labor, 
pecuniary transactions of the highest amounts and of the lowest, the payment of the 
national debt, the provision for the national expenditure, the command which the 
coin of the smallest denomination has over the necessaries of life, are all affected by 
the decision to which we may come on that great question which I am about to sub- 
mit to the consideration of the committee. 

The act which Sir Eobert Peel at that time presented to the Parlia- 
ment of Great Britain was the celebrated act of 1844, the purpose of 
which was to separate the issue and regulation of currency from the 
business of banking, and to place the control over currency under one 
single department, to be regulated in accordance with established prin- 
ciples and subject in every particular to strict regulations of law. Mr. 
Chairman, probably no question in which the public is concerned ever 
underwent so thorough a discussion as this question of the regulation of 
currency, not only in this country, but particularly in Great Britain, 
from 1810 clown to 1857. 

NAT CUR 16 



242 NATIONAL CURRENCY AND BANKING SYSTEM. 

Every phase of tlie question was discussed over and over again.. 
Parliamentary commission after commission was established to con- 
sider every proposition presented. First came the celebrated bullion 
report of 1810, then the report of the secret commission of 1819, then 
the commission of 1826, that of 1840, and finally of 1857, in which was 
summed up, in my judgment, the wisdom of the entire discussion, and 
to the discussion which then took place, so far as I know, nothing 
really has been added since that time. I believe that the general con- 
clusions then reached have been accepted by all writers of distinction 
from that day down to this. Of course, they differ somewhat as to the 
proper methods of regulating the currency, bat as to the principles 
then established I know of no disagreement among competent authori- 
ties, either on this side or on the other side of the ocean. 

As members of the commission of 1857, besides Sir Eobert Peel, then 
chancellor of the exchequer, there were such men as Disraeli, Gladstone, 
Sir James Graham, Sir James Willson, Mr. Wenglin, for forty or fifty 
years connected with the Bank of England, and a number of others 
scarcely less distinguished. There appeared before that commission 
such men as George Ward J^orman, who was for thirty years governor 
or director of the Bank of England; John Stuart Mill, Lord Overstone, 
and others distinguished as great bankers and men of large experience 
in business. 

In fact, the principles of currency regulation laid down in the report 
of 1840, have since been adopted in the main by every civilized nation 
on the earth, the United States being the only country now, as far as I 
know, among nations claiming to be enlightened that proposes to reverse 
the conclusion then arrived at, principles as well established in cur- 
rency as the law of gravity in physics, and to return to a principle of 
regulation of currency that has been condemned by every writer of dis- 
tinction for fifty years, as well as by the experience of every country 
that has tried it. The principle of regulation, as laid down by Sir 
Eobert Peel on the recommendation of Lord Overstone, was that the 
currency, in order to maintain its value, must be made to vary, both 
as to time and amount, as a purely metallic currency would vary; that 
in no other way could it be kept at the same value as the standard. 

In 1874 Germany adopted substantially the same principle with a 
modification which I think was a very great improvement. Under the 
act of 1875 of the Eeichstag, the Imperial Bank of Germany was 
established and a unification of the currency undertaken by with- 
drawing the currency of the several states of the federation and sub- 
stituting for it the currency of the Empire. By this law the Imperial 
Bank of Germany is permitted to issue a certain fixed amount of 
uncovered paper, just as the Bank of England was permitted to con- 
tinue in circulation a certain fixed amount of notes without security, 
and so are the country banks, but that amount can not be increased as 
to the country banks, and only by the Bank of England by absorbing 
a part of the currency surrendered by the country banks. 

The Bank of England is permitted to issue additional currency only 
upon the deposit in the issue department of coin or bullion for all the 
notes issued. That is the distinction between notes covered and notes 
uncovered. The Imperial Bank of Germany may issue notes in time 
of stress or panic in excess of the uncovered notes, upon condition of 
paying 5 per cent interest to the State. The purpose of that is to force 
the retirement of notes as soon as the exigency that called them out is 
over. For all notes issued beyond a fixed amount specified in the act 
coin or bullion must be deposited. That principle in the main governs 
all the countries of Europe. 



NATIONAL CURRENCY AND BANKING SYSTEM. 243 

The Bank of France, it is true, is governed somewhat differently, 
but it is a State institution with officers appointed by the Government, 
as is the Bank of Berlin, the chaucellor of the exchequer being presi- 
dent of the bank. So that the issue and regulation of currency in all 
the countries of Europe is now made in accordance with certain fixed 
principles, and in that way, and in that way alone, can proper regula- 
tion of a note currency be secured. I believe this to be the united 
voice of all the economists and financial authorities of Europe. That 
in that way, and in that way alone, can the value of a note currency be 
maintained at all times at par with gold. The first objection, then, to 
this bill is that it departs entirely from that principle and that it 
establishes no certain principle of regulation whereby the value of the 
currency is to be secured. 

Mr. Cobb, of Missouri. What bill do you mean J ? 

Mr. Warner. I mean the bill submitted by the Secretary of the 
Treasury; and the same objection applies to the Baltimore plan, and 
every other plan which proposes to turn over the issuing and regula- 
tion of the money of the people to institutions organized for private 
gain. The primary object of the act of 1844, 1 say, was to separate the 
banking business from the duty of issuing and regulating currency, 
creating money, and on that question, after a discussion of fifty years, 
there was almost no division of opinion in England. The concurrent 
judgment of nearly everybody was that the business of banking is 
necessarily distinct and separate from that of currency creation, and 
that the two can not be blended without doing mischief. On that point 
I beg to quote from a few of the authorities of that day, and I will not 
take up much time in doing so, but I am sure it will not be with- 
out interest. 

The one great question before the commission of 1857 was whether the right to 
issue circulating notes should he kept under the control of the Government, or 
whether the hanks or the Bank of England should he permitted to issue notes to 
circulate as money. 

On page 328 of this report Lord Overstone, who, as Samuel Jones 
Loyd, was one of the most distinguished and successful bankers and 
writers on the currency question, and, in fact, the real author of the act 
of 1844, was asked : 

Do you consider the separation of the issue and the hauking departments of the 
Bank of England to he founded upon the principle that the business of issue and 
the business of hanking are in their nature distinct? — A. Undoubtedly; it is impos- 
sible to entertain any other view of the matter. 

Further on in his testimony he says : " I certainly think it quite essen- 
tial that the issne of paper money should be kept entirely separate and 
distinct from everything connected with the banking business. Again, 
on page 328 : "The supply of the current coin — that is, the money of the 
realm — ought to be entirely separated from the banking business, which 
is simply trading in money, borrowing at a lower rate and lending at a 
higher rate. * * * Notes and certificates ought to be issued as the 
money, whether copper, silver, or gold is coined, under strict provisions 
of law, and by an authority, such as the mint, established by law and 
subject to strict regulations laid down in that law." And again: "The 
sole privilege of coining money, whether copper, silver, gold, or paper, 
ought to be vested in one institution, established for that exclusive pur- 
pose and subject to strict regulations of law; no share of such privilege 
ought to be conceded in any form to banks or to private individuals." 

And again, on page 329, he says: " Perfect freedom of competition 
should be established in the business of banking, correctly understood, 



244 NATIONAL CURRENCY AND BANKING SYSTEM. 

and effectually distinguished from the functions of coinage or from that 
of issuing paper tokens or representatives of coin — that is, bank notes, 
which, in fact, is coining under a form peculiarly susceptible of abuse — 
because the undue issue of paper notes is not restricted by that 
intrinsic value which effectually regulates the issue of metallic money." 
Lord Overstone then quotes from Daniel Webster, I think from his 
subtreasury speech of 1838, as follows: " The circulation of paper tends 
to displace coin; it may banish it altogether. At this very moment it 
has banished it. 7 ' Asking the committee to mark well that fact, he 
says: " A distinct statement by so great an authority of that as Web- 
ster, that the coin of the United States had been banished entirely by 
paper money, by currency payable to the bearer on demand and issued 
in obedience to what was deemed to be the wants of the public." He 
continues then his quotation from Webster as follows : 

If others may drive out the coin and fill the country with paper which does not 
represent coin, of what use is that exclusive power over coins and coinage which is 
given to Congress by the Constitution? Wherever paper is to circulate as subsid- 
iary coin, or as performing in a greater or less degree the functions of coin, its regu- 
lation naturally belongs to the hands which hold the power over coinage. This is 
an admitted maxim by all writers ; it has been admitted and acted upon on all neces- 
sary occasions by our own Government throughout its whole history. 

He then quotes Took as saying, " the privilege of issuing paper money 
is a delegation of that which is universally considered as a privilege 
residing in the State." 

Mr. George Ward Norman, so long connected with the Bank of 
England, referring in his testimony before the commission of 1857 to 
the bank act of 1844, said : 

I conceive the ground of the act to have been that the issue of paper money is a 
perfectly distinct operation from the ordinary business of banking, and that you 
can not mix up together the issue of paper money and ordinary banking business 
without doing mischief. 

Again, on the same page, 273, he says : 

I consider bank notes as money, and I think that you do mischief when you 
place the issue of money in the hands of persons who carry on ordinary banking 
business. * * * I consider that the issue of money should be regulated by the 
State, and when the money is issued then that bankers should be allowed to deal 
with it as they pleased, * * * the principle of competition can not be introduced 
into the issue of paper money without doing mischief. 

Again, on page 276, he says : 

A bank has to deal with the money of the country which exists, but it has prop- 
erly nothing to do with the issue of money. 

Alexander Hamilton said, referring to the old State banks: 

There is now no check to the creation of these money mints ; anybody and every- 
body, with or without character, has a right to enter the field of competition. * * * 
The superintendence of a power of such immense and vital consequence to the integ- 
rity, stability, and permanent interests of the public as that of money-making ought 
not, in the very nature of its operation, to be legislatively lodged in the hands of 
individuals. 

Mr. Henderson. Do you know when he said that? 

Mr. Warner. I think in 1839. It was immediately after the panic 
of 1837. 

Tbe value of no man's property, much less that of a community, should 
be placed at the capricious will of private cupidity and speculation. 

I quote again from one of Webster's subtreasury speeches, in which 
he says: 

Whenever paper is to circulate as subsidiary to coin or as performing in a greater 
or less degree the functions of coin, its regulation naturally belongs to the hands 
that held the power over the coinage. 



NATIONAL CURRENCY AND BANKING SYSTEM. 245 

Acting upon this principle, the business of banking and the crea- 
tion of money are so distinct and separate in their nature that they 
can not be safely blended. 

I say that all enlightened nations have abandoned the practice of 
turning over the issue and regulation of currency to an indefinite num- 
ber of banks. It was stated yesterday before the committee that the 
three things necessary to a sound currency were, first, security; second, 
convertibility as a means of regulation, and third, elasticity. Now, I 
wish to refer to these three principles briefly in their order. First, 
security. One of the earliest Secretaries of the Treasury, Crawford, I 
think, and I have not had time to look that up, said that the security 
of final payment of notes was no such regulation of quantity as would 
secure stability in the value of the currency. That saying was quite 
extensively quoted in the British discussions on that question as being 
a clear statement of a perfectly sound doctrine. 

Mr. Cobb, of Alabama. Please state that over again. 

Mr. Warner. That the security of final payment of notes, or their 
redemption, is no such regulation of the quantity of money as will 
insure stability of value, and the reason for that is very apparent. 
The United States might now issue $500,000,000 of 5 per cent bonds, 
and if it would allow banks to take these bonds at par, is there any 
doubt but that the national banks would issue $500,000,000 of currency, 
or as much as they are allowed by law to issue? The ultimate pay- 
ment of the notes would be amply secured — there would be no question 
about that, none whatever — but the quantity of the currency would be 
so increased that its value would become immediately depreciated. 

At first the depreciation would extend not only to the paper part 
but to the coin as well, involving the entire currency of the country as 
compared with the currency of other countries; hence the principle 
of ultimate security was abandoned sixty years ago as a principle upon 
which the regulation of the currency could be safely founded. If 
security of note circulation is a safe principle, then security by a pledge 
of land ought to be as good as a pledge of bonds. John Law said : 
u Any goods that have the qualities necessary in money may be made 
money equal to their value." 

Mirabeau said of the French assignats: " They represent real prop- 
erty, the most secure of all possessions, the land on which we tread." 
The fundamental error in this principle lies in the attempt to hold a 
thing as property and at the same time to coin it into money. At 
bottom the principle of basing the currency on bonds is just as vicious 
as basing it on land. There is no limit to the amount of bonds that 
may be issued any more than for the land that may be pledged, nor as 
much; but the principle itself is wrong for the reason that security of 
final payment affords no proper regulation of quantity upon which the 
value of each unit depends. 

Eichardo, in his evidence before the secret committee of the House 
of Commons in 1819, says : 

Plans for an improved system of currency are frequently laid before the public, 
which rest entirely upon this fallacy. The exclusive object of these systems is to 
obtain for the paper currency to be issued under them a greater degree of security 
than that which is supposed to attach at present to the notes of the Bank of England. 
This end the authors of these schemes generally propose to accomplish by contriv 
ances which they deem to be extremely ingenious, but which always resolve them- 
selves into the simple plan of making property of some kind or other the basis of 
the circulation. Sometimes the plan suggested proj>oses to issue a paper currency 
against the security of land, sometimes against the security of the public debt, and 
sometimes against merchandise in the docks ; but, having provided for the security 
of the notes, the plan generally terminates at this point: the projector apparently 



246 NATIONAL CURRENCY AND BANKING SYSTEM. 

conceiving that he has satisfied all the desiderata of a good paper currency, although 
he has introduced no specific measure for regulating the amount of that currency and 
maintaining its value relatively to the currencies of the other countries of the world. 

The second principle, as a means of regulation, is convertibility. In 
the bullion report of 1810 the doctrine seemed to be conceded that, if 
a currency was convertible — although the report stoutly contended 
against the doctrine that ultimate security was a safe principle at all 
times — that then it never could fall below the value of metallic money, 
or of the metallic standard; and that doctrine was held and acted 
upon, almost without dissent, I believe, until 1826. But the experience 
in England, after resumption in 1819, up to 1826, was such as to lead 
to a very careful reexamination of that principle, and although the 
directors of the Bank of England had, prior to that time, acted upon 
that principle and considered it perfectly safe, they were obliged, as 
Mr. Norman admitted, to abandon that principle. 

It was during this period, from 1819 to 1826 and on to 1844, that the 
question underwent such a thorough discussion, when everything was 
thoroughly threshed out. Every suggestion and every claim was ground 
to powder and all errors sifted out and the truth finally established, 
and one of the conclusions reached was that even convertibility could 
be relied upon as a safe principle for the regulation of the amount of 
currency. 

There were those even before 1826 who had opposed the doctrine that 
either security or convertibility could alone be relied upon to properly 
regulate the currency. Mr. Horner, in the Bullion Eeport of 1810, says : 

An increase in the quantity of the local currency of a particular country, will 
raise prices in that country exactly in the same manner as an increase in the gen- 
eral supply of precious metals raises prices all over the world. By means of the 
increase of quantity the value of a given portion of that circulating medium in 
exchange for other commodities is lowered; in other words, the money prices of all 
other commodities are raised, and that of bullion with the rest. In this manner, 
an excess of the local currency of a particular country will occasion the rise of the 
market price of gold above its mint price. It is no less evident that, in the event 
of the prices of commodities being raised in one country by an augmentation of its 
circulating medium, while no similar augmentation in the circulating medium of a 
neighboring country has led to a similar rise of prices, the currencies of those two 
countries will no longer continue to bear the same relative value to each other as 
before. The intrinsic value of a given portion of the one currency being lessened, 
while that of the other remains unaltered, the exchange will be computed between 
those two countries to the disadvantage of the former. 

Richardo says (see High Price of Bullion) : 

It would be readily admitted that whilst there is any great portion of coin circu- 
lation, every increase of bank notes, though it will for a short time lower the value 
of the whole currency, paper as well as gold, yet that such depression will not be 
permanent, because the redundant and cheap currency will lower the exchange, and 
will occasion the exportation of a portion of the coin, which will cease as soon as 
the remainder of the currency shall have regained its value and restored the 
exchange to par. 

Webster said, in his speech on the subtreasury bill, March, 1838 : 

I contend even that convertibility, though itself indispensible, is not a certain 
and unfailing ground of reliance. There is a liability to excessive issues of paper, 
even while paper is convertible at will ; of this there can be no doubt. Where, then, 
shall a regulator be found? What principle of prevention may we rely upon? 

J. R. McCullough says : 

When the currency of any particular country, as of England, consists partly of 
the precious metals and partly of paper converted into them * * * the excess of 
paper is not indicated by depreciation or fall in the value of paper, as compared with 
gold, but by a depreciation of value in the whole currency, gold as well as paper, as 
compared with other States. 



NATIONAL CURRENCY AND BANKING SYSTEM. 247 

Lord. Overstone said, in his testimony before the commission of 1875, 
page 408 : 

Convertible notes may be issued, continually depreciating- the currency, until the 
metallic portion of the currency has been entirely banished from the country. 

On the following page he says : 

The changes in the amount and value of the paper currency of the United States 
have been greater than in any other country, and it has produced an unprecedented 
amount of bankruptcy and ruin. 

And again, page 41, he says: 

It is undoubtedly true that convertibility is an ultimate security against a perma- 
nent excess of the currency, and fixes a limit beyond which such irregularity in its 
management can not be carried. But this principle only comes into operation 
through the medium of prices. If the curreucy be in excess, prices of all articles 
are affected in a corresponding degree; hence the balance of trade is disturbed, the 
exchanges are consequently affected, and a tendency is produced to export gold. 
* * Convertibility will not by.itself prove a sufficient protection against excess 
in a paper currency. The rule which requires that the amount of the circulation 
shall be made to vary with the amount of the bullion is of essential importance, 
and no system of paper currency can be secure which does not contain this as a self- 
Tectifying principle. 

And in his pamphlet on the management of the circulation previous 
to 1830, he says: 

It is not sufficient merely to ordain, as Peel's bill did, the convertibility of the 
notes ; it is further necessary to see that effectual means are provided for that end. 
It is now discovered that there is a liability to excessive issues of paper, even while 
that paper is convertible at will; and that to preserve the value of a paper circula- 
tion, not only must that paper be convertible into metallic money, but the whole of 
its oscillations must be made to correspond exactly, both in time and amount, with 
what would be the oscillations of a metallic currency, as indicated by the state of 
the bullion. Such a system, therefore, for the management of the circulation must 
be constructed as shall secure that due and steady regulation of the amount of the 
issues, through which alone any permanent security for their convertibility can be 
obtained. 

The next principle is that of elasticity. They say we must have an 
elastic currency. The Secretary of the Treasury says: 

A sound and elastic currency, capable of adjusting its volume easily and rapidly 
to the actual demands of legitimate business, is what the common interest of all 
our people requires. 

I say to the Secretary of the Treasury that perpetual motion is a 
great deal easier to obtain than that kind of elasticity. It never did 
exist in the world and it never can. There is absolutely no such rela- 
tion between the supply of paper money and the uses for money as 
admit of automatic regulation, and for a single reason. If paper money 
was issued only to meet the demands of business arising out of an 
increased number of transactions — that, is increased purchases and. 
sales of goods — then such a principle might be possible; but the fact is 
the effect of an excessive currency is immediately to raise prices, and 
as prices rise the demand for money increases pari passu with the rise 
of prices, and when prices are doubled the demand for $2 in every 
transaction is just as great as the demand for $1 was before. 

Mr. Hall. Does that principle apply to bank currency? 

Mr. Warner. Certainly, to bank currency as well as to any other, as 
I will show you a little further on ; it applies to any currency that is 
issued in excess, I care not what kind of currency it is. It would 
apply to the precious metals if there was, at any time, such a produc- 
tion of the precious metals as would greatly increase the proportion of 
metallic money to commodities to be bought and sold or to be circulated 
hy money, then the rise of prices that would follow would create an 



248 NATIONAL CURRENCY AND BANKING SYSTEM. 

enlarged demand for money. Kising prices never take up and give 
back. They take up and hold. The experience of the whole world is 
against the idea that business takes up money and gives it back auto- 
matically. 

Our experience under the old bank-note system is enough to set that 
at rest. One single fact is enough. Between 1830 and 1837 the notes 
of the banks of this country increased from $61,000,000 to $149,000,000, 
and then they went down until in 1813 there were only $53,000,000 of 
them. That was the way an elastic currency worked then, and it is the 
way it always worked. It is the way it worked in England when they 
had much more rigid restrictions than we have ever had in this country. 

An elastic currency! It is a delusion. By what principle are banks 
governed, or will they be governed if we turn over to them the issue 
and regulation of the currency ? I ask that question. Banks are insti- 
tutions organized for private gains. They are controlled by one prin- 
ciple alone — their own interest. If they can derive a profit by putting 
out more currency, they will put it out. There is no limit to the 
quantity of money they would put out or that the country would take. 

If you give to the national banks as now organized $1,000,000,000 of 
bonds at 5 per cent they would issue nine hundred millions of currency 
as fast as they could put it out, regardless of consequences. Simply 
because they could make money by putting it out. What did they do 
from 1861 to 1867 and 1868 and 1869, when there was already a full 
volume of other currency in the country. Prices were already inflated, 
but they kept on increasing the circulation. Why"? Because it was to 
their interest to do it. 

Now, I ask you gentlemen if the whole business of the world, or if the 
business interests of 70,000,000 of people in this country, the value 
of all their property, the wages of labor, the relation of property 
to debts, the prices of all products are to be subjected to the variations 
of a currency which may be increased or decreased as the interests of 
those engaged in the banking business may dictate. 

It was admitted yesterday — and it was admitted by the Comptroller 
of the Currency and by the Secretary of the Treasury, which, to use a 
slang phrase, was a dead give away of everything — that the reason 
why the banks contracted currency was that it was to their interest to 
do so. That is, they contracted it when it was their interest to do 
so and expanded it when it was their interest to expand it. But 
what was the interest of the great majority of the people or of 
the business men of the country? You have only to make it to their 
interest and you can have as large a volume of money as you want. 

Make it their interest to contract and they will contract it. But 
what a principle of regulation of that which determines the prices of 
all commodities and the value in money of everything! 

On this question of elasticity let me read from the bullion report. 

Mr. Hall. What bullion report? 

Mr. Warner. Of 18L0, the Horner report, the famous bullion report. 

As far back as the Bullion Eeport of 1810, Mr. Whitmore, then late 
governor of the Bank of England, stated the rule of the bank then to 
be "to govern its issues by the amounts of good paper offered for dis- 
count, on the principle that the public will never call for more than is 
absolutely necessary for their wants." This is what the Secretary of 
the Treasury seems now to think a safe principle; that is, business will 
not call for any more money than it wants, and banks will not put out 
any more than business calls for. But, referring to this principle, the 
Bullion Eeport says : 



NATIONAL CURRENCY AND BANKING SYSTEM. 249 

That this doctrine is a very fallacious one your, committee can not entertain a 
doubt. The fallacy upon which it is founded lies in not distinguishing between an 
advance of capital to merchants and an additional supply of currency to the general 
mass of circulating medium. (Bullion Report, p. 55.) 

Lord Overstone, in his testimony before the commission of 1857. says, 
page 364, "the public will call for and take money to any extent" — there 
is no fear of that ; and again, on page 365: 

I have no hesitation in saying that the Bank of England can put out any quan- 
tity of its notes that it thinks proper; that the effects of that will be to drive gold 
out of the country; that the notes will take the place of gold in the circulation, and 
that will go on until the whole of the gold has been driven out of the country. 

Sir Charles Wood said, discussing the act of 1844: 

It was held in the bank parlor, as it is by many even now, that to issue paper on 
good commercial security was all that was necessary to insure the proper amount of 
paper being in circulation. 

That idea, however, long ago was abandoned in England, but it seems 

ill to hold a place in this country. 

Mr. Warner. As Mr. Weguelin said, the wealth of the world is 
offered against money. A distinction must be drawn between borrow- 
ing money and buying money. Money on the one hand stands offered 
against everything, and everything on the other hand stands offered 
against money. Money will go out and continue to go out as prices 
rise, and as prices rise and confidence increases the demand for money 
increases and there is no principle of elasticity which operates until 
the point of explosion is reached. This is reached when gold begins to 
go out, or so much of it goes that confidence is destroyed; then panic 
follows and there must be a contraction all along the line. It is a 
contraction, however, after the explosion, and that is the way such a 
currency is regulated and always has been. 

The experience of every country, I think, has been the same; that is, 
first an expansion, then a sudden, violent, and ruinous contraction. 
That is the necessary consequence of a currency the issue of which is 
left.to the discretion of those issuing it or to their interest. It was 
shown in report of 1857 of the commission that even the 205 country 
banks of England could not be intrusted with the responsibility of 
issuing circulating notes. Sir Eobert Peel said on that point: 

It appears to me that we have, from reasoning, from experience, from the admis- 
sions made by the issuers of paper money, abundant ground for the conclusion that 
under a system of unlimited competition, although it be controlled by convertibility 
into coin, there is not an adequate security against the excessive issue of promissory 
notes. 

Now, unless the issuers of paper conform to certain principles, unless they vigi- 
lantly observe the causes of influx or efflux and regulate their issues of paper accord- 
ingly, there is danger that the value of the paper will not correspond with the value 
of the coin. The difference may not be immediately perceived, nay, the first effect 
of underissue, by increasing prices, may be to encourage further issue, and as each 
issuer, where there is unlimited competition, feels the inutility of individual efforts 
of contraction, the evil proceeds until the disparity between gold and paper becomes 
manifest, confidence in the paper is shaken, and it becomes necessary to restore its 
value by sudden and violent reduction in its amount, spreading ruin among the 
issuers of the paper, and deranging the whole monetary transactions of the country. 

If we admit the principle of a metallic standard and admit that the paper currency 
ought to be regulated by immediate reference to the foreign exchanges — that there 
ought to be early contractions of paper on the efflux of gold — w-e might, I think, 
infer from reasoning, without the aid of experience, that an unlimited competition 
in respect to issue will not afford a security for the proper regulation of the paper 
currency. 

He then quotes what Mr. Hobhouse said when asked, "With the rise 
of prices would there be an increased paper issue by country bankers V 7 



250 NATIONAL CURRENCY AND BANKING SYSTEM. 

He answered, " Yes; there will be an increase in the local circulation 
when prices rise." 

Again he was asked, "Does it not often happen that your circulation 
is increased in the beginning of a drain of gold?" and he answered, 
" Yes; we do not pretend that our circulation is at all governed by it." 

Now, take the ten thousand banks in the United States, and delegate 
the power to all of them to issue notes, and entrust to them the duty 
of regulating the currency of the country. What will be the result? 
When will tliey begin contracting ? Not until the issue of money ceases 
to be profitable to themselves. The drain of gold will fall first, of 
course, upon the banks of the seaboard, the great cities. They may 
check their issues, but the country banks will pay no attention to that. 
Inflation will go on long after the gold begins to leave the country. 
Why, the idea of maintaining a gold standard under a system of cur- 
rency of that kind is so at variance, not only with the experience of 
every nation in the world but of reason, that I am astonished that such 
a proposition as this should be brought forward at all. 

Gentlemen, there is only one way to maintain the gold standard in 
the United States in my judgment, absolutely but one, and that is to 
restrict the circulation, reduce bank credits, bring down prices until 
our creditors abroad will choose to take of us commodities rather than 
gold for what we owe them. There is no other way. We are a debtor 
nation, and no debtor nation cau maintain as large a volume of cur- 
rency as a creditor country. Our people owe the people of other coun- 
tries not less than $2f 0,000,000 a year, certainly not less than that, 
annually. This must be paid in gold or commodities. It can be paid 
in commodities on one condition only, and that is that we will sell com- 
modities as low as any other nation in the world, or sell them enough 
lower to induce our creditors to take of us goods and leave the gold 
here. 

Now I say, gentlemen, that any measure which tends to raise prices 
in the United States will expel gold, I care not whether it be tariff or 
anything else. A tariff which operates to check imports may so far 
reduce the total sums to be liquidated abroad, but any tariff measure 
which raises prices will operate to expel gold. The expansion of the 
currency will have the same effect; we can not have currency expansion 
and a gold standard at the same time in this country. It is impossible. 
All this talk about a sound currency and an abundance of sound money 
is sheer nonsense. What is usually meant by sound money is clear 
money, and money can be made dear only by making it scarce, and, as 
Senator Jones says it is equivalent to saying they are in favor of 
scarce money, but plenty of it. The two things do not go together. 

I make this exception, Mr. Chairman, to what I have said about the 
gold standard. Between 1879 (after specie resumption in this coun- 
try) and 1892 we increased our indebtedness abroad by more than 
$200,000,000 a year on the average. That is, we increased our debt 
2,500 million in the short period of twelve years. Thus, instead of pay- 
ing the interest on what we owed abroad, instead of paying balances 
with exports or with gold, we gave new notes; that is, we sold securi- 
ties. We sold bonds of one kind and another. But in 1892 they 
stopped taking securities. We were enabled during that period to 
maintain a higher level of prices in the United States than the level of 
other countries. 

When our creditors stopped taking securities then the demand for 
gold came. Now, if the Government will issue $250,000,000 of bonds a 
year for the next five or ten years, undoubtedly we can pay our interest 



NATIONAL CURRENCY AND BANKING SYSTEM. 251 

with new bonds — that is, give new notes for it — and then we can expand 
the currency, or we can by tariff legislation raise prices and still save 
our gold, but tbe end of that policy, of course, is national bankruptcy 
and ruin. It is the policy of u after us the deluge." But there is no 
way by which we can maintain the gold standard here but by restrict- 
ing the currency, and not expanding it. We can not at the same time 
narrow the foundation of primary money, standard money, and then 
increase the superstructure of credit upon it and make it safe or 
secure. That is impossible. Our currency must be regulated with 
reference to the foreign exchanges, with reference to maintaining an 
equilibrium of prices between this and other countries, if we Avould 
maintain the single gold standard. I submit there is no answer to that 
proposition . 

I beg to refer in this connection to the question of deposits and the 
extent of inflation possible under the proposed bill. Now, paper 
currency is not the only means by which prices may be raised, or by 
which we inay have inflation. Indeed, the greatest inflation comes 
through bank credits — bank credits under the name of deposits. The 
report of the Comptroller of the Currency shows that the total 
deposits of all the banks reporting for October 2, 1894, was, in round 
numbers, $4,700,000,000 and some odd. Now, what does that repre- 
sent? Why, it represents really a form of currency, but, instead of 
being represented by notes, it is a credit on the books of the banks 
against which the depositor can check. 

The old way, when banks were first started, and before this modern 
system of bank credits was known, and when banks had the right to 
issue notes, if one borrowed a thousand dollars from a bank and gave 
his note for it the bank would issue to him its own notes, and he would 
take them and use them. The only inflation then, if there was any, 
was simply the notes of the bank. Now the bank gives the borrower a 
credit on his book and on the bank's books of a thousand dollars, which 
is called a deposit, although not a dollar has been placed in the bank 
by the borrower. The borrower then issues his own check on that. 
That credit has the same effect, so far as it goes, of so much currency. 

Let me group this together and state it, as I think I can, in a way 
by which my meaning may be easily understood. We have in the 
United States, say, sixteen hundred millions of currency, gold, silver, 
and paper. Now, that is divided in this way : A little over a thousand 
millions are in the tills of merchants and in the hands of the people 
doing the every-day work of retail trade, paying the wages of labor, 
carrying on all the smaller transactions of the country. It is at work 
every day in the week; it is never idle. Five hundred and fifty mil- 
lions of that volume of money is in the banks, taking all the banks of 
the United States. 

Now, upon that $550,000,000 as a basis, the banks have erected a 
superstructure of bank credits of four thousand seven hundred millions, 
but not quite all of that is subject to check. Some of it is only subject 
to check on notice, but that is the total. This five hundred and fifty 
millions has been thus expanded into four thousand seven hundred 
millions. Now deduct from the four thousand seven hundred millions 
the five hundred and fifty millions, and in round numbers we have four 
thousand millions of bank credits, and some over $1,000,000,000 in the 
hands of the people. Now I submit it is through these two agencies, 
the money in the hands of the people and this credit currency in the 
bank, that all the transactions of every nature and of every description 
are carried on. Everything is liquidated by means of the one or the 



252 NATIONAL CURRENCY AND BANKING SYSTEM. 

other of these two forms of currency, and the claim that 90 or 95 per 
cent of all business is done on credit, or by credit instruments, is a fal- 
lacy. It is all done out of this volume of currency and bank credits, 
the proportion being about four to one. The efficiency, however, is 
not as lour to one. 

The efficiency of the actual money is at any rate twice that of the 
bank deposits; but it is right there, in the expansion of bank credits 
under the name of deposits, that every panic that has ever taken place 
in this country originated. That is the storm center. Now, in the 
panic of 1893, there were $500,000,000 in the banks and four thousand 
millions of credits. Those who had in the banks the $500,000,000 of 
actual money became alarmed, but the other people who had deposits 
there did not become alarmed. They owed the banks, and they did 
not get alarmed by the panic. If they were alarmed it was because 
they were fearful they would be called upon to pay before they wanted 
to pay. Those who had actual money in the banks became alarmed, 
and began to draw it out. When they drew out about half of it, as 
they did, then this volume of credit currency must be reduced, in one 
way or the other, or the proportion between the money and the pure 
credit would be destroyed. The credit could not be reduced -to that 
extent at once, of course. 

Suppose that the $500,000,000 of currency had all been drawn out 
of the banks. Then, for the time being, this credit currency would 
have been absolutely extinguished, and in some places it was, pretty 
nearly. That is where the contraction and expansion come in. There 
is the elasticity of credit, and that is the thing which is dangerous, and 
it is not easily controlled. Now, add to that the increase of bank paper, 
and let me show here how much it can increase. Under the bill 
before the committee or under the proposition before the committee, 
the banks may issue up to 75 per cent of their capital, but as effect- 
ive circulation this volume will be reduced by a reserve deposit of 30 
per cent, leaving the effective per cent of capital in the form of currency 
52J per cent. That is, the real limit to bank currency is 52£ per cent 
of the capital. The plan of the Comptroller provides for 50 per cent, so 
that so far they practically agree. The capital of all the banks that 
may now issue currency is $1,060,000,000. Upon this $795,000,000 may 
be issued under existing law by the banks already in existence. From 
15 to 25 per cent must now be held as reserves against deposits and 5 
per cent against circulation. 

Under the proposed law no reserves are required against deposits; 
only 30 per cent against circulation. Assuming that the proposed law 
will require a reserve altogether of 10 per cent more than is required 
under the present system against circulation and deposits, and it will 
cut down the volume of effective bank currency under the proposed 
law, say, to $715,000,000. If from this amount the present national- 
bank currency of $171,000,000 be deducted it leaves $544,000,000 as 
the possible inflation of the currency by existing banks, with no limit 
to the increase in the number of banks nor in the capital of existing 
banks. 

It will be seen that the proportion of bank credits to reserves of act- 
ual money is more than 6 to 1 and it often rises much above that propor- 
tion. Should as large a part of the new currency go into banks to be made 
the basis of bank credits it would increase this fund by $200,000,000, 
upon which a superstructure of bank credits of $1,200,000,000 would 
in time be erected. Was ever a scheme so wild, uncertain, and unstable 
as this ever seriously proffered to a people before? Surely, there is 



NATIONAL CURRENCY AND BANKING SYSTEM. 253 

nothing like it in the history of money. No land- money scheme, no 
bond-security scheme ever proposed came up to this scheme to coin 
credit into money. 

Compare this with the restriction system of England, Germany, and 
other European countries. What other country would even for a moment 
entertain a proposition to turn over the issue and regulation of cur- 
rency to 10,000 banks? Indeed, itis a proposition too monstrous for any- 
body to consider and maintain mental equanimity. If the author of this 
scheme had ever read the discussion on the subject of the regulation 
of currency which took place from 1810 to 1857 in England, or if he had 
ever read the Eeport of the Parliamentary Commission of 1857 he would 
never have connected his name with a scheme that can be compared 
with no other ever proposed, except that once undertaken by John Low. 

Any proposition that turns over the regulation of currency to insti- 
tutions organized for private gain is at bottom wrong. Unless it is to 
their interest to furnish the business world with money they will not 
do it, and the business world must suffer the consequences. There is 
the fatal defect in this proposition, and which in my judgment is enough 
to condemu it utterly. 

Mr. Chairman, I willnot take up the time of the committee any longer, 
but will simply say I am very much obliged to you, and that I would 
like to add to my statement a few quotations which I have not had 
time to read. 

Mr. Cobb, of Alabama. Can you give us something as a substitute? 
You have been tearing down, but you are not building up anything? 

Mr. Warner. I would do this : I would do exactly as is recom- 
mended in the report of 1857. There is but one way by which the cur- 
rency can be automatically regulated. The world has never found but 
one, and that is through the production of the metals. Subject the 
supply of money to the same laws that govern the supply of everything 
else. Then if the production of metallic money should be unduly 
increased, it would, of course, become depreciated, as would be made 
manifest by rise in prices; but the point would very soon be reached 
where it would be easier to obtain a dollar, or where a dollar could be 
obtained with less labor and energy by producing something else to 
exchange for it than digging it from the ground ; then the production of 
the metals would in that way be checked. I say that is the only 
automatic way the world has ever devised or ever known for regulating 
money. 

In addition to that, all money that supplements the metals should 
be rigidly limited to some proportion between population and business, 
the one purpose being to maintain stability — the greatest possible sta- 
bility. Again, another objection to the kind of currency proposed in 
this bill is, that it is not a legal tender. All money ought to be a legal 
tender. If it pretends to be money, it should be money when you pay 
it out as well as when it is paid to you. Nothing should be allowed to 
circulate as money that is not money. 

Mr. Johnson, of Indiana. Do you think it proper the money should 
be issued by the Government? 

Mr. Warner. Either by the Government or by an institution under 
the control of the Government, and the issue of currency should be in 
accordance with fixed principles, subject to rigid regulation of law, 
and not left to the discretion of anyone or made subject to the interests 
of any private parties. 

Mr. Johnson, of Indiana. You do not favor a bank issue? 

Mr. Warner. I separate the bank business from issues. Issue of 
money is a separate and a distinct thing from banking. 



254 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Ellis. Mr. Warner, you did not elaborate on a suggestion made 
during your remarks, and I will ask you now to give us your view as 
to how the currency can always be maintained at par with, the metals, 
the precious metals'? 

Mr. Warner. The old rule laid down by Albert Gallatin, and gener- 
ally accepted in the discussions in England, was this : That a paper 
currency must not exceed what the volume of the metallic currency 
would be if there was no paper. That is the old principle, but I think 
that is too rigid. It does not take into account the existence of any 
other currency in the world but metallic money. That would be a 
strictly correct principle if the world's money everywhere else was 
limited to the precious metals except in the country issuing the paper. 

But the true rule I believe to be this. It is admitted as a general 
principle, first, that if there was nothing but metallic money in the 
world, it would distribute itself among the different commercial nations, 
in proportion to their trade, under the circumstances under which trade 
is carried on in the various countries, each having what is called its 
distributive share, or what would fall to it as necessary to maintain an 
equilibrium in the general level of prices. Now, if a paper currency 
never exceeds this amount, it can not fall below the value of the metals. 

The law of distribution of money is just as true, however, of money 
composed partly of coin and partly of paper, if the paper is converti- 
ble into coin. Then the world's supply of money of that kind will be 
distributed in the same way that a metallic currency would distribute 
itself, only that the metallic part would pass from country to country 
in the settlement of balances or in maintaining the general equilibrium 
of prices. 

I believe it to be a thoroughly sound principle that if our paper money 
never exceeds our distributive share of the world's money (that is, never 
exceeds what is necessary to maintain a level of prices here at the 
international level of prices) it can not be depreciated. That is the 
doctrine of Bicardo and of economists generally, I believe. 

If the paper money is any less than our distributive share the metals 
(gold now) will come here to supplement it. Therefore, in laying down 
the rule for the regulation of paper currency you must draw the line of 
uncovered issues of paper far enough within what would constitute our 
distributive share of the world's money to always require some part of 
the coin of the world to supplement it, in order to maintain a general 
level of prices. 

That is the doctrine acted upon in the bank act of 1844. They drew 
the line at the lowest point which the currency of Great Britain had 
reached for a long time and took that as perfectly safe for uncovered 
issues. 

Mr. Ellis. You have expressed an opinion that the right to issue 
currency ought to be taken from the banks. What would you substi- 
tute in lieu of that? 

Mr. A. J. Warner. I would establish a department of issue to be 
under control of the Government absolutely, and conform the issue by 
that department to certain principles under established regulations of 
law — the principles to be laid down in the law. 

Mr. Ellis. Would you make that issue legal tender? 

Mr. A. J. Warner. Always. I would have nothing in circulation 
as money that was not legal tender. 

Mr. Ellis. How would you have them redeemed? 

Mr. A. J. Warner. If you will sufficiently limit the amount of the 
paper redemption is immaterial, because it never will fall below the 



NATIONAL CURRENCY -AND BANKING SYSTEM. 255 

coin level. In 1848 the Bank of France was permitted to issne 
350,000,000 of francs in irredeemable notes. At first, bnt for a brief 
period, these notes did depreciate, but they immediately recovered 
and were never below par in coin afterwards. 

Mr. Ellis. You stated in your address to the committee that the 
national banks would, in your opinion, if bonds were issued and they 
were permitted to get currency on them, take out currency up to the 
full amount, and that they would flood the country with money. 
Explain why it is that, under the power they have had under the exist- 
ing law, they have not availed themselves to the full extent, and have 
not issued the currency which they were entitled to issue? 

Mr. A. J. Warner. I stated that if they could get bonds bearing a 
rate of interest high enough to make it profitable for them to issue cur- 
rency they would do it. And that is the reason why they did issue so 
rapidly early under the national banking act. It was because they could 
get bonds at par bearing 5 and 6 per cent interest, and then they put 
out the currency as fast as they could. 

But now the bonds are at such a high premium and the interest so 
high that it is not profitable for the banks to issue currency. In other 
words, if you make it profitable for them they will put out all the cur- 
rency they can get out, and there is no limit to that. 

The Chairman. State why it is that those banks, which have already 
put up their bonds to a certain amount, have not taken out the full 
amount of the currency to which they are entitled. Banks, in organ- 
izing, are required to put up a certain amount of bonds. Why do they 
not issue currency to the full amount of these bonds % 

Mr. A. J. Warner. They do, generally, unless they are holding the 
bonds for some other purpose. 

The Chairman. The bonds are in the Treasury of the United 
States. 

Mr. A. J. Warner. They perhaps prefer to hold the bonds where 
they can dispose of them. 

The Chairman. The law requires them to keep them in the Treasury 
in order to maintain their organization. 

Mr. Ellis. Where the banks have put up the minimum of bonds 
they have not taken out the circulation to which they are entitled and 
which they can have without further expense to themselves. Why 
have they not taken out the circulation ? 

Mr. A. J. Warner. I know of no reason why, except that they 
prefer to hold the bonds for immediate sale or for use in some other 
way. 

Mr. Ellis. They can not use them. They are in the Treasury. 

Mr. A. J. Warner. I can see no reason why they did not issue that 
amount of currency. 

Mr. Cox. These banks had to put up the bonds in the Treasury uuder 
their charter. They are generally 4 per cent bonds and the interest on 
them is paid quarterly. Does it not often occur that the bank realizes 
quite as much in taking its interest on those bonds without any risk 
as it would by taking out the currency'? 

Mr. A. J. Warner. I did not understand at first just what bonds 
were referred to. At times like this when prices are falling and the 
rate of interest is very low and security is uncertain, there is no object 
in the banks taking out more currency, as they can not even lend the 
currency they have. Always at times when prices are falling it is 
unprofitable to invest money in property of any kind. It is more pro- 
fitable to hold the money, because that is rising in value all the time, 



256 NATIONAL CURRENCY AND BANKING SYSTEM. 

and the banks had better hold it in their vaults, had better bury it than 
to invest it in property which is going down. 

Mr. Gox. Is not that the same rule that applies when they are hoard 
ing gold? 

Mr. A. J. Warner. Precisely the same. 

Mr. Ellis. You have examined the Baltimore plan and the Secretary 
of the Treasury's plan; state whether if either of those plans were 
adopted it would increase the volume of currency in the country. 

Mr. A. J. Warner. I think either of them would increase the volume 
materially, after time enough had been given to let it get into full opera- 
tion. 

Mr. Ellis. What would be the effect on agricultural products if 
that happened 1 ? 

Mr. A. J. Warren. There would be a general rise in prices, except 
in products which depend for their market mainly on foreign demand, 
such as cotton or wheat, the surplus of which goes abroad. These 
would be affected only to the extent that the entire currency of the 
country became depreciated under the influence of an augmentation of 
volume. Other things, however, pretty generally, such as lands, houses, 
and everything not exportable and not dependent on foreign demand 
or on gold prices abroad, would rise. 

Mr. Ellis. What would be the effect on the price of gold if either 
one of those systems were enacted into law? 

Mr. A. J. Warner. The first effect would be, as stated by Mr. 
McOulloch and by Eicardo, a depreciation of the entire circulation as 
compared with the currency of other countries. That would involve 
gold along with paper, as stated by Webster; and that would be man- 
ifested by a general rise of prices here. 

jg| But gold would immediately begin to go out; and from a debtor nation 
it would go out fast. As soon as gold goes abroad (whether drawn 
from the Treasury or drawn from the banks) confidence would be shaken 
in the stability of the currency, and undoubtedly after a time gold 
would go to a premium, and there would almost certainly be a rush and 
a panic right there. 

The Chairman. Do we understand that you are of the opinion that 
the volume of money in any country regulates the prices of commod- 
ities in that country and fixes them? 

Mr. A. J. Warner. Always. The prices are determined by the 
proportion of commodities to things to be bought and sold. 

The Chairman. What is the per capita circulation in France? 

Mr. A. J. Warner. About $42, I believe. 

The Chairman. And what is it in England? 

Mr. A. J. Warner. From $18 to $22 — dependent on the estimate of 
the coin in circulation, which is not acurately known. 

The Chairman. Is there that disparity between prices in England 
and France? 

Mr. A. J. Warner. No, sir; there is not that disparity. Neverthe- 
less, prices depend on the proportion of the volume of money in a 
country as compared with commodities. In France the currency is 
supplemented by less than two thousand millions of bank credits. 

In England, however, the circulation is supplemented by more than 
four thousand millions of bank credits, and when you put together the 
total currency (that is, the currency which operates on prices) you 
have at all times a very close approximate to an equilibrium; that is, 
the currency of England plus its bank credits (which does work as 
money) equals almost exactly the currency of France, plus the bank 
credits of France. 



NATIONAL CURRENCY AND BANKING SYSTEM. 257 

The Chairman. I understand you to mean by bank credits the whole 
amount of deposits in banks subject to check? 

Mr. A. J. Warner. Yes; that is right. 

The Chairman. Have you ever estimated what would be the per 
capita circulation in this country if you include in it the bank credits? 

Mr. A. J. Warner. We have about four thousand millions in bank 
credits, one thousand millions in actual money in the hands of the peo- 
ple, and $550,000,000 in the banks. 

The Chairman. What would be the per capita in this country? 

Mr. A. J. Warner. Divide the five thousand millions by 70,000,000 
of population and it will leave the per capita about $70, which is less 
than that of England, including bank credits. But the relative efficiency 
of bank credits and currency are not the same. They are not equal. 
So that I usually count that it takes $2 in bank credits to do the work 
of $1 in actual currency. 

The Chairman. The amount of bank credits in the country depends 
upon each individual making deposits in banks rather than keeping 
the money in his pocket. 

Mr. A. J. Warner. Deposits in money represent only an average of 
20 per cent. The remainder consists of credit. But it affects prices, 
as I will show you by a paper I have here (after a search). 1 find that 
I do not have the paper I thought I had, in which I have given the 
proportion of currency to bank credits, attempting to equalize them as 
to their efficieucy, but it is practically as I have stated. Instead of 
90 or 95 per cent of business being done with credit, we have about 
four times as much bank credit as currency in actual circulation. 

Its efficiency, however, is only about one-half an equal amount of 
currency. And that is true of the bank credits of other countries, 
but possibly not in same degree. You must take into account the con- 
ditions that exist in each country in comparing the currency of one 
country with the currency of another. 

The Chairman. You have stated that bank credits affect prices a& 
well as currency itself. 

Mr. A. J. Warner. Yes, sir. They operate, as Mr. McLeod says, 
almost the same as the old bank notes; and they no doubt do take 
the place, in a large measure, of the old bank-note issue. 

The Chairman. If there was no tariff system between England and 
France, and no customs duties, would there be any difference between 
prices of ordinary commodities in England and France except the 
freight interest and charges'? 

Mr. A. J. Warner. That is all. 

The Chairman. Then what has this volume of currency in each 
country to do with it? 

Mr. A. J. Warner. The volume of currency determines the price 
level in both countries. 

The Chairman. But the per capita circulation is $40 in one and 
only $18 in the other. 

Mr. A. J. Warner. That is qualified by the bank credits of the one 
as offset by the bank credits of the other. John Locke stated that 
law — that when the same quantity of money is passing up and down, 
the king in trade, then the variation in the prices of things, one with 
another, is in the things themselves under the law of supply and 
demand. But when you change the quantity of money that operates 
on prices, then you change the general level of prices. 

The Chairman. Is it not a fact that at this time there is in the United 

NAT CUR 17 



258 NATIONAL CURRENCY AND BANKING SYSTEM. 

States a redundancy of currency compared with the business wants of 
the country? 

Mr. A. J. Warner. When prices are falling, and the volume of cur- 
rency is being contracted money always accumulates in money centers. 
There are 5,000 persons each day added to the population, or a million 
and a half in a year, and tbere is no increase in the money volume. 

Prices must go down. They are not low enough in this country to 
enable us to pay our debts abroad with goods, and therefore we are 
paying tbem in gold. Every business man who looks ahead knows that 
prices must go lower, that there is no possibility of arise in prices under 
present conditions, and therefore he knows that he can not afford to 
borrow money to invest in property or business. He holds his money 
because that is the thing which is increasing in value, and under that 
condition of things nobody wants to borrow money. 

The Chairman. Why does not the redundant currency inflate prices ? 

Mr. A. J. Warner. Because the money itself is increasing in pur- 
chasing power all the time. It is the most profitable thing to hold. If 
a man has money now he had better bury it. It is the buried talent 
that is now increasing, not the talent that is being used. Always 
when prices are falling money will gather in hoards. 

The Chairman. You stated that if we issued a thousand millions 
of 5 per cent bonds the banks would take them up and issue nine hun- 
dred millions of a circulating medium. 

Mr. A. J. Warner. I have no doubt of it. 

The Chairman. If that were the case, would it inflate prices ? 

Mr. A. J. Warner. It would not. 

The Chairman. Why not? 

Mr. A. J. Warner. Prices are not inflated now because all of the 
wealth of the country is offered against money. All the property that 
I have is offered against money, but I can get little or nothing for it 
because prices are falling and money rising. Those who have money 
will not give it for property. They will lend money, but there is a 
great difference between lending money and paying it out for property. 
But this would all change when inflation began and prices began to rise. 

The Chairman. If there is sixty millions of currency in the vaults of 
the banks which no one will borrow now, would anybody borrow if 
there was nine hundred millions more in the vaults of the banks'? 

Mr. A. J. Warner. Just as soon as prices begin to rise and it became 
profitable to invest money, then everybody would want money, and 
property of all kinds would begin to advance. If this bill should pass 
property would begin to rise immediately. Investments would go from 
one thing to another; people would buy pig iron, and land, and every- 
thing else, because they would know that prices were going up. 

The Chairman. You mean Mr. Carlisle's bill? 

Mr. A. J. Warner. Yes. 

The Chairman. Then you ought to be in favor of it. 

Mr. A. J. Warner. I am in favor of a stable currency, not of infla- 
tion one year and stringency the next. 

Mr. Warner. You do not believe in the elasticity of currency? 

Mr. A. J. Warner. Elasticity in currency is a dream ; it is a delu- 
sion. I might almost say that I think it is a modern fad. But there 
is a time when there ought to be provision made for the issue of more 
currency. 

Mr. Walker. You mean the temporary issue of currency? 

Mr. A. J. Warner. Yes; its temporary issue, and that in time of 
panic. The expansion of currency goes on as long as prices rise and 



NATIONAL CURRENCY AND BANKING SYSTEM. 259 

confidence is kept up. Then everybody is willing to take money, 
because he can use it profitably. When the limit is reached, gold goes 
out of the country, and then explosion comes. Confidence is destroyed, 
people with money in the banks draw it out, and at such time there is 
no danger of having too much real money. 

I think that the thing we need now is a provision for an issue of cur- 
rency at that moment when credit currency in the banks is gone or is 
impaired, and when credit generally is destroyed. There ought to be 
a provision for issuing currenc}^ at such a time on securities; and that 
can be done through a department of the Government provided for the 
issue of currency. 

It ought to be an issue without limitation, but on securities, with the 
condition that those getting it shall pay a rate of interest for it, says, 
from 2 or 3 per cent up, increasing as the quantity increases. That 
would operate to force the money back when the emergency that called 
it out passed. That is the wise provision of the Imperial Bank of Ger- 
many. The German Government allows an issue above the fixed limit, 
by paying to the Government a tax of 5 per cent. 

Mr. Black. What security would you require for the issue of this 
money ? 

Mr. A. J. Warner. I would let the banks deposit securities in the 
Government bureau and take out currency on which they should pay 
to the Government an interest of from 2 to 5 per cent, or higher, if 
needed. With such an interest on it they would only use the money 
as long as it was necessary to supply the demands. 

Mr. Black. Would that not embark the Government in the banking 
business? 

Mr. A. J. Warner. The furnishing of currency is entirely different 
and separate from banking. It is like providing coin. And I hold 
that you might as well turn over the coining of money to the gold- 
smiths as the issuing of paper money to the banks. 

Mr. Black. Why did not the framers of the Constitution, when 
forming that provision which dealt with money, go a little further and 
borrow your idea? 

Mr. A. J. Warner. They provided for coining money and regulat- 
ing its value. But that was over one hundred years ago, when the 
modern system of commerce had hardly arisen. 

Mr. Black. Can the modern system of commerce carry us beyond 
the fundamental provisions of the Constitution in that connection 1 ? 

Mr. A. J. Warner. I think that the decision of the Supreme Court 
that the Government has the right to issue notes settles that point, 
and if the Government may do it directly, it may do it through an 
agency. It may provide an agency adapted to that end. I remember 
that in a speech made in 1881 by the present Secretary of the Treasury 
different opinions were expressed by him from those expressed in his 
late report. He quotes the decision of the Supreme Court on that 
point. 

Mr. Black. You say that the Government may do this through its 
age its? 

Mr. A. J. Warner. Yes. 

Mr. Black. Is not the bank a very good agency of the Government? 

Mr. A. J. Warner. It would not be practicable to let every single 
bank in the United States issue money under this emergency plan, and 
then the demand for it will come mainly from the great centers of com- 
merce — from ^New York, Boston, and Baltimore; and if you provide for 
an increase of temporary currency to stay panics in those centers it 



260 NATIONAL CUERENCY AND BANKING SYSTEM. 

will be effectual for the whole country, and I think that it ought to be 
done immediately. 

Mr. Warner. Your idea is that panic culminates when the banks 
will not or can not lend money on securities which people have to offer? 

Mr. A. J. Warner. The explosion will not come until the banks 
have pretty nearly reached the limit. Then the currency increases 
and prices rise and gold goes out, and the panic comes and the public 
is made to suffer. 

Mr. Warner. The banks either will not or can not lend money on 
securities, and the people who have taken their money out of the banks 
can not. And your idea is that Government should not lend money 
on securities so long as anybody else will take those securities, but 
that when the securities are such that nobody else will take them, the 
Government ought to take them and lend money on them? 

Mr. A. J. Warner. Issue it to the banks. 

Mr. Warner. That is, whenever nobody else will lend money on 
securities we ought to provide that a person holding those securities 
may take them to the Government and get money on them 1 ? 

Mr. A. J. Warner. Nobody else can. The only power strong enough 
to come in and do that is the Government itself, and I hold it to be the 
duty of the Government to supply currency to the country. 

Mr. Warner. In other words, when nobody else will or can lend 
money on securities, the Government ought to do it? 

Mr. A. J. Warner. Yes; and do it on securities. It is simply pro- 
viding currency when currency is greatly needed. 

Mr. Warner. How long would the credit of the Government last in 
that case? 

Mr. A. J. Warner. It would not be impaired at all. The credit of 
the Government would not be impaired if it should put out at such a 
time one or two or three hundred millions of currency, just as the Impe- 
rial Bank of Germany may do and as it has done. By taxing this cnr- 
rency, it will come back very rapidly as soon as the panic is over. 

Mr. Warner. In L893 we had something like three thousand millions 
of different classes of gold and securities on which banks could ordi- 
narily get money without any trouble. Would you have the Govern- 
ment issue currency against all of them? 

Mr. Warner. You do not require bullion as a security? 

Mr. A. J. W t arner. No. 

Mr. Warner. Then ultimate redemption means what the securities 
might sell for? 

Mr. A. J. Warner. It is seldom that bank notes fail to be redeemed. 
Even under our old system of wildcat banking the notes were almost 
always redeemed after a time. 

Mr. Warner. Did the redemption of the notes the next year help in 
the panic ? 

Mr. A. J. Warner. No; it did not, although the banks often went on 
issuing notes even after the bank had suspended. That was done in 
1837. But let the Government, through a department, issue notes that 
would circulate as money at this time and under conditions that would 
force them back after the exigency was over. The Bank of England 
three times, in 1847, 1857, and 18(56, had the limitation on its issue sus- 
pended, and the bank was allowed to issue notes without limit. But it 
has never had to avail itself of that very much, and 1 think that by 
depositing securities for currency, to be issued by the Government, 
there never wonld be a great amount of such issue, and as to credit, 
the Government could secure itself from ultimate loss. 



NATIONAL CURRENCY AND BANKING SYSTEM. 261 

Mr. Warner. Then your idea is to let the Government issue money 
on securities on which banks would not issue the money'? 

Mr. A. J. Warner. I have not laid down the principle of the Gov- 
ernment issuing money on securities at any time, except in times of 
panic. 

Mr. Warner. And you would have the Government lend money on 
securities as long as securities could be furnished, and then, if the 
wants of the community demanded more money, you would have the 
Government issue it without security, as the Bank of England did'? 

Mr. A. J. Warner. No; I simply argne that we ought to follow the 
plan of the Imperial Bank of Germany. I think that the safest, the 
soundest, and the best system. 

Mr. Warner. That is, you would have the quasi security of a high 
rate of interest on the money issued. 

Mr. A. J. Warner. Yes; a rate of interest that would force the notes 
back when the panic was over. 

Mr. Warner. Would you have any limit to the advance of money at 
that rate"? 

Mr. A. J. Warner. I would make no limit but the security. When 
credit is destroyed there is no danger of an overissue of money. 

Mr. Black. As I understand, your apprehension is that Mr. Carlisle's 
plan, if enacted into law, would drive gold out of the country'? 

Mr. A. J. Warner. I have no doubt but it would. 

Mr. Black. And you think that that would be very disastrous 1 ? 

Mr. A. J. Warner. As long as we are attempting to maintain the 
gold standard it would undoubtedly be very disastrous to have that 
broken. 

Mr. Black. Is that the only reason for if? 

Mr. Walker. That includes all others. 

Mr. A. J. Warner. It includes many others. I do not want to be 
understood, however, as saying here that I think the fact of gold going 
to a premium would be detrimental (if it went there and stayed there) 
permanently to the United States. Indeed, I go a step further and 
say that I do not believe that any debtor nation on this earth can long 
maintain the gold standard, the United States not excepted. No 
debtor nation has done it. Every one that has tried it has failed, and 
the United States, as a debtor nation, must fail. 

Mr. Black. You mean that if we expand our paper currency as long 
as we are on a gold standard, it is like adding to a superstructure 
without strengthening the foundation 1 

Mr. A. J. Warner. That is it exactly. 

Mr. Black. You have given us the principle which you say ought to 
control the issue of paper money. According to that principle have 
we enough paper money now, or too much, or how is it 1 ? 

Mr. A. J. Warner. I do not think we have too much. 

Mr. Black. Have we enough? 

Mr. A. J. Warner. That depends altogether on the range of prices 
that you wish to maintain. If you wish to maintain the present low 
range of prices, yes. If you think that prices ought to be advanced, 
no. I think it more important to maintain stability than it is to have 
any given range of prices. However, I think that prices are altogether 
too low, relatively, to debts now. 

Mr. Black. With that opinion, have we too much currency, or too 
little, or enough'? 

Mr. A. J. Warner. Too little. 

Mr. Black. How much more do you think we ought to have? 



262 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. A. J. Warner. I tliink we ought to restore at once the bimetallic 
standard of money, subjecting the money supply to the production of 
the mines, as through all the ages of civilization. I think that instead 
of narrowing the foundation of primary money to gold alone, while 
increasing the superstructure of credit, we ought to broaden the foun- 
dation of primary money, and make or increase our currency in that 
way. I think we ought to have more money, but it should be solid 
money — standard money. 

Mr. Cox. What ratio between the two metals would you suggest? 

Mr. A. J. Warner. I should restore the bimetallic standard at the 
ratio which has always existed. Then, after you have given monetary 
use to silver, if it is found that its value is not the same as gold, and if 
it is impossible to maintain parity of the coins of the two metals, there 
would be more reason to talk of a change of ratio. But remember, 
however, that the value of gold or silver depends mainly on its mone- 
tary use. We have taken the monetary use away from silver and 
doubled it up on gold. 

Mr. Johnson, of Indiana. Do you think that parity would be main- 
tained under the ratio you have suggested ? 

Mr. A. J. Warner. Let me finish my statement, please. The chief 
value of the gold comes from its monetary use. The chief value of sil- 
ver formerly came from its monetary use, and it is impossible that the 
value of silver bullion can now be the same as that of gold at the old 
ratio, with the monetary use doubled up on one and denied the other. 

Mr. Black. You say that the value of the metal depends on its use 
as money? 

Mr. A. J. Warner. Yes ; largely or mainly. 

Mr. Black. Its use by whom ? 

Mr. A. J. Warner. By the world ; by everybody. 

Mr. Black. When the use of silver has been discontinued by the 
rest of the world besides this country, how can we restore its use alone 
by ourselves ? 

Mr. A. J. Warner. That brings me back to the question which was 
asked by the gentleman from Indiana (Mr. Johnson), can the United 
States maintains the parity of the two metals. I will give what I con- 
ceive to be the conditions under which the parity would be broken, and 
it would not be broken until that time, provided you allow no increase 
of the paper currency of the country. Our distributive share of the 
world's money now is about $1,600,000,000 under the conditions in 
which money is used and trade carried on in this country. That is, it 
takes about $1,600,000,000 to maintain the equilibrium of prices 
between the United States and other countries. 

That being the case, if we added less than $1,600,000,000 (say that 
we were reduced to $1,200,000,000) prices here would fall below the 
international level, and gold would come here to make up the deficiency 
and to restore the equilibrium. The Secretary of the Treasury gives 
$625,000,000 as our gold, but I think that it is entirely an overestimate. 
If we restored the coinage of silver immediately and did not increase 
the paper currency at all, gold would go to a premium and leave the 
country only when we had provided ourselves with a volume of money 
by the coinage of silver equal to our distributive share of the world's 
money without gold, and when we had reached that limit gold would 
be gone and the parity broken. JNow, how long would it take to pro- 
vide the country with a form of money large enough to constitute our 
distributive share of the world's money without gold? That is the 
problem. 



NATIONAL CURRENCY AND BANKING SYSTEM. 263 

Mr. Brosius. Do you include bank notes as money*? 

Mr. A. J. Warner. I do. 

Mr. Hall. My mind is all deformed by jour use of the term 
"money." I want to see if I can clear myself up a little bit. Do you 
use the term money to include checks, drafts, and bank credits? 

Mr. A. J. Warner. I do not. 

Mr. Hall. When you are speaking about any increase of the forms 
of money in connection with prices, do you mean that to apply to bank 
credits and checks and drafts and clearing-house receipts and bank 
notes ? 

Mr. A. J. Warner. I do not. Checks and drafts are never money, 
and are never classed as money. Bank credits are not classed as 
money for this reason : Tbat the form of bank credits will vary with the 
supply of currency and with business demands for discounts. Money 
embraces gold and silver and bank notes intended to circulate as 
money — indeed all forms of paper money. 

Mr. Hall. I understood you to say that any increase in bank cur- 
rency (or what is known as bank notes) increases the prices of com- 
modities J ? 

Mr. A. J. Warner. Bank notes do, certainly. 

Mr. Hall. I would like to read this statement to you : 

An issue of notes, smaller than what the puhlic could employ and keep out in cir- 
culation, means only an inconvenience really trifling. Checks and bills would be 
more freely used, and that would be the whole of the matter. A little more gold 
coin would perhaps be employed, but the quantity would be trifling, and the value 
of gold is determined, not in England, but in Europe generally, or rather over the 
whole world. 

A diminution of bank notes does not make this spare capital smaller; it only 
places less of it at the disposal of the issuing banker. Bank notes are but paper — 
paper tools — not the property or capital itself. Interest does not depend on more or 
fewer tools of paper being used, but on wealth available for lending. 

Banking, with all its machinery of bank notes, checks, bills, and the like, is 
only intermediate agency ; the only thing it does is — not to create property, but 
simply to place it in different hands. There is only one case in which an issue of 
bank notes might tell on interest, and that is in a particular spot, at a special time, 
and under stated circumstances — in a panic in the money market. 

Therefore, drawing the conclusion that by increasing the forms of 
bank notes there is no increased range of prices. Is that statement 
true ? 

Mr. A. J. Warner. There is no increase in the price of gold. 

Mr. Hall. I did not speak of gold. I am speaking of commodities. 

Mr. A. J. Warner. It is not true at all. 

Mr. Hall. You have taken the position that any increase in the 
forms of bank notes is the same as an increase of what you call 
primary money'? 

Mr. A. J. Warner. If the bank notes perform the same work as 
primary money, and if they go into circulation the same, then their 
effect is the same ; but the effect of bank notes and of primary money 
is not always quite equal. 

Mr. Hall. John Stuart Mill lays down the principle that any 
increase in the forms of money increases the prices of commodities, 
and that any decrease in the forms of money decreases the prices of 
commodities. Is that so? 

Mr. A. J. Warner. Yes; that is the law. 

Mr. Hall. Do you maintain that this principle applies to bank 
notes'? 

Mr. A. J. Warner. Precisely the same as any other form of money. 

Mr. Hall. I read that to show how far you differ from Bonamy Price. 



264 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. A. J. Warner. I differ from him almost in toto. I could have 
told you that in the beginning. Bonamy Price is sound on almost 
nothing. 

Mr. Sperry. I want to inquire once more about your statement that 
an increase of money in any country increases the prices of commod- 
ities. 

Mr. A. J. Warner. The prices of everything bought and sold. 

Mr. Sperry. Would it increase the price of labor % 

Mr. A. J. Warner. Very little; at first, not. The rise in the wages 
of labor will follow a rise in prices, but the wages do not go up usually 
until after a rise in prices, and they do not fall until after a fall in 
prices. 

Mr. Sperry. According to the reports of the Secretary of the Treas- 
ury, the total amount of money in the country was 774 millions. The 
actual amount outstanding (outside of the United States Treasury) was 
751 millions. In 1892 the actual amount of gold money in the country 
was 2,219 millions, or an increase of 200 per cent. Now, predicating 
my inquiry on the facts as stated by the Secretary of the Treasury, 
that there had been an increase of 200 per cent from 1873 to 1892, how 
do you account for the fact of the fall in prices in the presence of a 
great increase in the amount of money in the country? 

Mr. A. J. Warner. In the first place, I challenge the correctness of 
that statement as to the 2,200,000,000. Coin and currency and cer- 
tificates are counted twice over to make that up. 

Mr. Sperry. I assume that the condition stated in 1873 was pre- 
cisely as stated in 1893 % 

Mr. A. J.Warner. No; I beg pardon. They were not the same. We 
had no silver in 1873; no silver coin on which certificates were issued. 
We had no gold in circulation in the country, and no estimates of gold 
in tbe country. We had no subsidiary silver in circulation, and no 
estimates of subsidiary silver. I think that that statement of the cur- 
rency is excessive. 

The estimate of gold in the country is without any data. There is 
no data on which to found an estimate of 625,000,000 of gold in this 
country outside of the Treasury, and the Treasury does not pretend 
to have any. The estimate as given, would require over 400,000,000 
in the pockets of the people outside of the banks this side of the Mis- 
souri River. Does anybody believe that? That estimate is based, in 
the first instance, on the guess of Mr. Burchard, when he was Director 
of the Mint, and it has been added to and taken from as coin and bullion 
have come in or gone out from the Treasury, without counting what has 
been taken out of the country by private individuals, or which has been 
consumed in the arts. I therefore say that this estimate of the volume 
of gold in the country is excessive by not less than 200,000,000. 

That estimate of currency, too, takes no account of the loss of legal- 
tender notes or bank notes by fire, by wear and tear, or in any other 
way for thirty years. When you have equated them, and taken the 
proportion of actual currency at that time and now, I think that gentle- 
man wi]l find that the law I have stated holds good. 

Mr. Sperry. The Government cannot control bank credits, so that 
that element does not come into this discussion. I understood you to 
say that, under your plan, an increase of money in the country increases 
the price of commodities, and that a decrease of the circulating medium 
decreases prices. 

Mr. A. J. Warner. Always. 

Mr. Sperry. I hold before me an estimate of the Secretary of the 



NATIONAL CURRENCY AND BANKING SYSTEM. 265 

Treasury. It is not stated in gold nor in silver, but, from such informa- 
tion as is accesible to him, be bas estimated tbat tbe money of all kinds 
in tbe country outstanding", outside of tbe Treasury, in 1873, was 
175,000,000, and tbat in 1892 it was 1,600,000,000. Now, you can strike 
off 100,000,000 for inaccuracies, if you want to, and still tbere is an 
increase of 100 per cent in tbe forms ot circulating mediums, and tbere 
is a fall in prices. 

Mr. A. J. Warner. Tbere bad been a larger volume of money up 
to tbat time. Tbere was a collapse following tbe panic, when prices 
went down to where they bad not been at any time before. 

Mr. Sperry. You assume in your answer that tbere bad been more 
coin in circulation previous to that time. Tbe figures of the Secretary 
of the Treasury indicate that there never was so much money previous 
to that time. 

Mr. A. J. Warner. From what statement do you read? 

Mr. Sperry. From a statement of tbe Secretary of the Treasury 
showing the amount of money in the United States in tbe Treasury 
and in circulation on the dates specified. 

Mr. A. J. Warner. All that I have to say of that is, that if that 
statement is true then all the Secretaries of the Treasury (including 
Chase, McCullough, and Bout well, and all who occupied that office 
immediately after the war), did not tell tbe truth, for they stated the 
volume of currency following the war as averaging more than $50 per 
capita. 

Mr. Sperry". The stability of your theories depends on your impeach- 
ment of the accuracy of the Treasury figures; is that it? 

Mr. A. J. Warner. The stability of my theories does not depend on 
that at all, but I do say tbat the statement given of the volume in 
money at the close of the war is not correct. 

Mr. Sperry. In 1873? 

Mr. A. J. Warner. Before that ? 

Mr. Sperry. I am not asking any thing before tbat. I am taking the 
data for 1873. 

Mr. A. J. Warner. I do not challenge the statement as to 1873, but 
as to the volume of currency before tbat. 

Mr. Sperry. Never mind tbat; I do not care about it. It is not in 
this case. I am speaking of the range of prices. Since 1873 they 
have been constantly downward, while the money outstanding bas 
been constantly upward. Now, I want you to reconcile that fact with 
your theory that an increase of money meant increased prices. 

Mr. A. J. Warner. We have had an increase of population. Tbe 
population bas increased about 66 per cent over tbat of 1873. And as 
early as 1873 the circulation had not become very widely spread over 
the whole country; tbat is, not in the South. That was soon after the 
war. The first expansion of the currency had to go to the South. 

Mr. Sperry. I do not want to wander down South. 

Mr. A. J. Warner. You must do it. Then there has been, of course, 
an increase of wealth in this country, an increase faster than the increase 
of population. The census reports show tbat things to be bought and 
sold have more than doubled in the United States in tbat time. Now, 
we compare the volume of currency with population and wealth. 

Mr. Sperry. Compare it with population, but never mind wealth. 

Mr. A. J. Warner. We must take wealth into the count. 

Mr. Sperry. The per capita circulation in this countrv in 1873 was 
$18, and in 1892 it was over $24. 

Mr. A. J. Warner. That assumes that there is 625,000,000 of gold 
in circulation, and that there has been no loss of paper currency. 



266 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Sperry. It assumes nothing; it states facts. 

Mr. A. J. Warner. I know; but it is based on the supposed circu- 
lation of gold which I do not think exists, and it takes no account of 
the increase of wealth. The two elements which determine prices are 
the quantity of commodities and the number of people to make 
exchanges; that is, the things to be bought and sold and the number 
of people to carry on trade. 

Mr. Sperry. When you stated to this committee that an increase of 
money would increase prices, did you take into account the increase of 
wealth? 

Mr. A. J. Warner. That is, of commodities. Certainly; I spoke of 
an increase of currency as compared with commodities or wealth. 

Mr. Warner. Do you include in currency bank deposits? 

Mr. A. J. Warner. I did not take deposits into account. 

Mr. Warner. Did we not have to take them into account to 
straighten out France and England a few minutes ago? 

Mr. A. J. Warner. When you take it into account in that way you 
assume that it will vary always in the same country pretty nearly as 
the volume of currency varies. 

Mr. Warner. Were you not explaining a few minutes ago that its 
failure to do so is what made this great difference between bank credits 
and actual money? 

Mr. A. J. Warner. Yes ; it affects prices, undoubtedly. 

Mr. Warner. Is your theory anything more than this, that under 
similar circumstances similar causes will produce similar results? 

Mr. A. J. Warner. I have stated that if there is an expansion of 
credit it will have its effect on prices for the time being, but I say it 
is generally assumed that credits will expand and contract with the 
currency. 

Mr. Warner. You have explained it as a matter of fact that that is 
not what they do at all. 

Mr. A. J. Warner. And they affect prices. 

Mr. Warner. So that the prices which are modified by these vary- 
ing figures need have no necessary connection with the amount of 
actual currency in the country? 

Mr. A. J. Warner. Credit may vary one way or the other more 
rapidly than the currency. It Avill affect prices, but it is so difficult 
to measure the effect that it is seldom taken into account, it being 
assumed that there always will be about the same proportion between 
money and credit. 

Mr. Sperry. You have stated that an increase of money in the 
country would increase prices and also increase wages. 

Mr. A. J. Warner. It will increase prices, and ultimately increase 
wages. 

Mr. Sperry. Now, I will read to you from the report of the Finance 
Committee of the Senate in the Fifty- second Congress an estimate made 
of wages in this country from 1810 to 1891. The committee took 
the year I860 as the year to start from, and ascertained what the 
wages were, calling the wages of this year 100. From that they went 
backward to 1840, estimating the percentage of loss, and then forward 
to 1891, estimating the percentage of increase. In 1873, on that basis, 
the wages were $1.48, and in 1891, $1.60. 

Mr. A. J. Warner. The wages given there are wages in organized 
industries, but that does not include wages in agriculture or the wages 
of those that depend directly on the price of what they produce. It 
includes only wages in organized industries, and there it is true that 
through labor organizations wages were raised by combinations and 



NATIONAL CURRENC Y AND BANKING SYSTEM. 267 

strikes. Wages were raised for the time being even while prices were 
falling, but there was more idle labor and less time was made and 
earnings were less. But the law will assert itself, and wages must, in 
the end, obey that law and come down. Half the people working for 
$1 a day can not buy what the other half produces at $2 a day. 

Mr. Brosius. Would you not, for the convenience of your statement 
that an increase in the volume of currency increase prices, qualify it 
with the words, "other things remaining the same?" 

Mr. A. J. Warner. The increase in the volume of money relative to 
population and commodities increases prices, that means other things 
remaining the same. 

Mr. Johnson, of Ohio. When you speak of currency being loaned 
to banks on security, you would prefer Government bonds, of course? 

Mr. A. J. Warner. I would prefer Government bonds. 

Mr. Johnson, of Ohio. You believe that Government bonds, in a 
time of panic, should be changed into legal tender currency? 

Mr. A. J. Warner. Yes; I think that would be a good provision in 
time of panic for the Government to issue a certain amount of currency 
on interest and to take as security Government bonds first and then 
perhaps other securities. 

Mr. Johnson, of Ohio. Would you lend that money to any bank? 

Mr. A. J. Warner. I do not like the term "lending." I would issue 
it as currency. 

Mr. Johnson, of Ohio. But that is the fact. 

Mr. A. J. Warner. I think you have done enough when you pro- 
vide to supply the great centers with currency. 

Mr. Johnson, of Ohio. Would you lend to State banks as well as to 
national banks? 

Mr. A. J. Warner. I do not see any reason why we should not lend 
to State banks as well as to national. 

Mr. Johnson, of Ohio. Would you lend to manufacturers? 

Mr. A. J. Warner. No. 

Mr. Johnson, of Ohio. You would draw the line there? 

Mr. A. J. Warner. I should draw the line there, because it is through 
bank deposits that the trouble comes, and I would i>rovide the currency 
for the banks so that they could supply their depositors with currency. 

Mr. Johnson, of Ohio. Would you lend to farmers? 

Mr. A. J. Warner. I would not. 

Mr. Johnson, of Ohio. I wanted to get you on record. 

Mr. A. J. Warner. That is right. I should want it to be used as 
currency to the bank depositors. In the last panic depositors could 
not get their money. There was scarcely a bank in the Eastern States 
that could pay the checks of their depositors. I would supply the 
means of paying them so as not to stop the wheels of trade and com- 
merce in the country. 

Mr. Cox. And you would not let the farmer have it although he 
might have deposits in the bank? 

Mr. A. J. Warner. The object is not to lend capital; it is not as 
capital but as currency. I would not have the Government lend capi- 
tal. That is banking business. But I would have the Government 
create currency temporarily to supply the place of a credit destroyed. 

Mr. Johnson, of Ohio. Would you have the currency a legal-tender 
money ? 

Mr. A. J. Warner. Yes; make it legal tender. 

Mr. Johnson, of Ohio. And you would not lend it to the laborers? 

Mr. A. J. Warner. I would not lend it as capital at all. I would 
issue it as currency to stop panic; nothing else. 



268 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Ohio. You know, Mr. Warner, that you and I may 
stump together some time, and I may want to quote you on this subject. 

Mr. A. J. Warner. I would put it out as an augmentation of cur- 
rency. I would not lend it as capital to anybody, not to banks. 

Mr. Johnson, of Ohio. Would you lend it as legal-tender money to 
banks? 

Mr. A. J. Warner. I would supply a currency to fill the place of 
credit currency destroyed. 

Mr. Cox. Let me see if I understand you. In case of emergency 
you would provide a board consisting of officers of the Government, 
and you would have the banks go and place securities there for the 
purpose of establishing what I would call an emergency circulation? 

Mr. A. J. Warner. That is a very good term, an emergency 
currency. 

Mr. Oox. A bank takes that emergency fund and puts it in its vaults, 
the object being to meet all checks that may be drawn on deposits, but 
you do not mean to say that you want the bank, when it has got the 
emergency fund, to meet the checks of manufacturers any more than it 
meets the checks of farmers? 

Mr. A. J. Warner. No; certainly not. 

Mr. Oox. And you do not mean to say that a laborer should be denied 
the payment of bis check any less than the manufacturer or the farmer? 

Mr. A. J. Warner. I have said nothing to indicate anything of the 
kind. I am not for supplying capital, but an emergency currency. 

Mr. Johnson, of Indiana. That is like recognizing the principle of 
an elastic currency. 

Mr. A. J. Warner. It takes the place of collapsed credit. 

Mr. Warner. Does not that put us all in the hands of the banks? 

Mr. A. J. Warner. I think not. 

Mr. Warner. It does if you lend only to the banks. 

Mr. A. J. Warner. It is not capital at all, but currency that I am 
for providing. 

(The committee took a recess until 2.15 p. m.) 

The Chairman. The chair desires to state to the committee that the 
venerable Mr. Pratt, of Baltimore, is now present, and the cl^air sug- 
gests he mate his statement now, and Mr. Warner can be recalled at 
any time hereafter if any questions are desired to be asked of him by 
members of the committee. 

Mr. Ellis (to Mr. Warner) : Will you remain? 

Mr. Warner. Yes, sir. 

The Chairman. Mr. Enoch Pratt, of Baltimore, a gentleman well 
known in financial circles, is present, and will take the stand. I will 
state to the members of the committee that Mr. Pratt is hard of hear- 
ing, and they will be governed in that respect by that fact. This is Mr. 
Pratt, gentlemen. 

STATEMENT OE MR. ENOCH PRATT, OE BALTIMORE, MD. 

Mr. Pratt said : I did not wish to come here to discuss this question. 
The matter of the Baltimore plan is laid before you here and it has 
been perfectly illustrated. 

The Chairman. The committee desires to have your views in regard 
to that plan, and also any other views in regard to the currency ques- 
tion which you might desire to submit. 

Mr. Pratt. The documents sent here from the Clearing-House Asso- 
ciation are my sentiments and wishes, and they have been fully explained 



NATIONAL CURRENCY AND BANKING SYSTEM. 269 

here by our Mr. Homer, two days ago, I believe. That was in perfect 
accord with my views. I am president of the Clearing-House Associa- 
tion of Baltimore, and the matter has been discussed, there, and we have 
very clearly in accord with the plan which we have set forth, and I can 
add nothing to that that I know of. I did not know that the desire of 
the committee was to have any further information on that point. I 
think it is very clear. I had understood that the committee would 
desire to hear something about the action of the State 1 banks in issuing 
their notes. The State-bank currency was the currency of the country 
up to the time of the establishment of the national banks, and the 
gentlemen here are all of them familiar with it, no doubt; but my infor- 
mation, I believe, looking around here, goes beyond the age of any of 
the people here. 

I commenced work as a clerk in Boston in 1823, at the age of 15 years. 
At that time we had nothing but local banks, and the currency of the 
country was, of coarse, the issues of those banks of promise, which were 
seldom fulfilled. The notes of a bank 10 miles from Boston were at a 
discount, and all the currency of the country was at a discount of from 
a half to 10 per cent. My business as a youug clerk was to go to the 
brokers and sell instantly all bank notes we got, as we did not desire 
to keep them in our possession a great while, not knowing their secur- 
ity. The evil became so great that the strong banks in Boston and 
others resolved upon adopting a principle that was incorporated in our 
national-bank law, making the banks responsible for the redemption of 
their money that they put out, and they formed an association and 
appointed the Suffolk Bank, in Boston, as the exchange. Every bank 
was obliged to put up a certain amount for the redemption of their 
notes which would be redeemed by that bank. That system created a 
very great revolution, and made the money, for a time being, a secure 
currency for the business of the country. A bank which failed to keep 
its deposits in that Suffolk Bank to redeem their notes was thrown out 
and considered to have failed. 

I came to Baltimore in 1830, and I found the same uncurrent money 
prevailing there, and through a large part of my business life, up to 
1860, I had to deal with this uncurrent money which was circulated. 
Bight here in Virginia the State Bank of Virginia, a large bank, 
established its branches around the country, and they would make 
their notes redeemable in some inaccessible point in the Allegheny 
Mountains, where people were obliged to go to have their money 
redeemed. I recollect one broker who collected about $5,000 and went 
over there to have it redeemed, but it got circulated about that he had 
come there to get that money out of the bank, and he had to take out of 
town very quickly, and he did not get his money. The merchants, in pay- 
ing our bills would buy this Virginia money, which was at a discount of 
from 1£ to 3 per cent all the time. They would buy that money and 
bring it there and tender it to us in payment of debts, when we had 
trusted them, for goods for twelve months, and we had to take that or 
gee nothing. 

Those were the evils of an irredeemable bank-note system with 
which, of course, most of you gentlemen are familiar as much as I am. 
As for our Baltimore plan here for the preservation and perpetuation 
of the national-bank system it is the best system the world has ever 
seen, there is no question about it. We have had a currency that is 
perfectly current all over the country, whereas, under the old banking 
system, we could not buy a ticket to go anywhere out of the State. I 
think the plan the Baltimore clearing-house has perpetrated, if put into 



270 NATIONAL CURRENCY AND BANKING SYSTEM. 

operation, would serve our purpose to continue this bank-note system, 
which is likely to come to an end in consequence of securities which 
we have to put up to perpetuate the banks. 

We are obliged to have Government bonds, and when the 4 per cent 
bonds of the Government, which is the longest bond now in existence, 
are paid off, why the banks will cease; but it is our desire that some 
plan should be adopted : that this is a perfect plan of security in bank 
notes, and it should be preserved. We do not care whether a national 
bank fails or not; we have no anxiety about it. Our notes pass just 
as well. It is only for the local stockholders to look out for their own 
interest, and this Baltimore plan, I think, will meet that case. I do not 
think I can add anything more to it. 

Mr. Ellis. What have you to say about the fifth section in the bill 
submitted by the Secretary of the Treasury, which provides for the ulti- 
mate liability of ail the banks of the country for every other bank which 
goes into the system"? 

Mr. Pratt. Well, I think the security would be good, but I do not 
think you can force the banks into that arrangement. I confess I have 
not considered it very carefully, but it strikes me you can hardly force 
a strong bank into this. I doubt whether you could force them into it. 
It would be very well if you could. I consider my bank a very strong 
bank, and it would be a matter for us to very seriously consider whether 
we would. I have been connected with my bank about fifty-five years 
and have a very great desire to keep it strong as long as the Lord pre- 
serves me for the rest of my short life. 

Mr. Brosius. I would like to ask. if you please, whether the Suffolk 
Bank system, to which you have alluded, recognized the principle of 
joint liability of banks in any sense? 

Mr. Pratt. Ebne whatever. It was a forced measure of those banks 
there to force those people to keep their deposit there. If they did 
not do it they would throw them out and consider them failed. 

Mr. Brosius. Each bank supplied its own means to redeem the 
notes? 

Mr. Pratt. Yes, sir; it was a strong pressure brought to bear upon 
them, and that system worked admirably. That system lasted up to 
the commencement of the national bank system, say from before 1830 — 
I do not recollect the exact year; but it was in existence clear up to 
the time this national-bank system went into operation, and they kept 
their currency strong. 

Mr. Brosius. Do you think it practical now to establish a bank sys- 
tem in which each bank supplies its own means of redeeming its notes? 

Mr. Pratt. No; they could not do that; the country is getting too 
big; we have too many States and cities. 

The Chairman. I do not think you understood Mr. Brosius's question. 

Mr. Pratt. Yes ; I say I answered that by saying I thought no. I do 
not think you can force them to do it. 

Mr. Walker. I would like to ask, did that system, practically com- 
pelled by the, joint banks through the Suffolk bank, work any injustice 
to any one of the other banks? 

Mr. Pratt. No, sir; it was an advantage to them. 

Mr. Walker. It kept them strong, all of them ? 

Mr. Pratt. It kept them strong all the time. They were obliged to 
be strong. A bank could not afford to do otherwise, for if they did 
not keep up their deposit they were thrown out and adjudged bank- 
rupt. 

Mr. Walker. Do you think it is possible to compose the general fiuan- 



NATIONAL CURRENCY AND BANKING SYSTEM. 271 

ces of the country and establish theconfidence thatexisted in New Eng- 
land by the Suffolk Bank system all over the country to-day without 
retiring the greenbacks and treasury notes? 

Mr. Pratt. I do not think they could; the country is too large. The 
greenbacks would have nothing to do with it. A bank that under- 
takes to put out notes must be responsible and take them in. A bank 
that puts notes out must pay them, and the national-bank notes would 
have nothing to do with that. 

Mr. Walker. That is entirely clear, but you do not understand my 
question. My question is, whether we can have a proper banking sys- 
tem and cheap money, as cheap as it was under the Suffolk system, 
where the United States Government is responsible for the redemption 
practically of all the notes, currency notes, in the country, as it is now, in 
gold? 

Mr. Pratt. Well, that would be a very strong feature. 

Mr. Walker. It would be a strong feature, but 

Mr. Pratt. Would the Government do it? 

Mr. Walker. Well, the Government is doing it now or attempting 
to do it? 

Mr. Pratt. Under the Suffolk system, yes. 

Mr. Walker. Well, now, what is the primary and fundamentally 
necessary thing to be first done to give us sound banks and a sound 
banking system of sound finances? 

Mr. Pratt. I could not point that out to you. That would require 
a good deal of calculation, and I would not answer that question. 

The Ghairman. What he desires to know was, whether the retire- 
ment of the greenbacks from circulation would facilitate a sound bank- 
ing currency? 

Mr. Pratt. Well, now, I do not think it would. I do not think you 
are going to get any sound banking system under a State-bank system. 
I am utterly opposed to having any old State-bank systems. 

Mr. Henderson. Do you think it is desirable to retire the green- 
back circulation? 

Mr. Pratt. No; I do not; I would like to have the Government 
increase it, because I know it is safe and I would like to have them alto- 
gether. I would like to go in for safety. I think the Government is 
doing a right thing in putting currency out. 

The Chairman. Mr. Cobb here says "Are you willing to put your 
age in the record V 

Mr. Pratt. Yes, sir; I am four months over 86 years old. I have 
always been a Eepublican and a strong Union man, and I thank God 
for it. My sentiments have been known all my life and I have never 
put my candle under a bushel. I did not do so in 1861 when the coun- 
try was in the midst of a war, and I have not veiled my sentiments up 
to to-day. My father was the same before me and transmitted my sen- 
timents to me. One of my great-grandfathers cast the first cannon that 
was ever cast in this country in the Revolutionary war. [Applause.] 

The Chairman. Mr. Johnson, of Ohio, desires to ask whether you 
put a limit upon the amount of greenback circulation the Government 
should admit? 

Mr. Pratt. Not a cent of limit in the world. Let them put out all 
they can get paid for. But I am utterly opposed to their putting out 
so much currency and piling up silver in their vaults, for I do not see 
what they are going to do with it. 

Tlie Chairman. We are very much obliged to you. 

Mr. Pratt. I think you will find I have talked too much. 



272 NATIONAL CURRENCY AND BANKING SYSTEM. 

AFTER RECESS. 

STATEMENT OF MR. ALFRED L. RIPLEY. 

The Chairman. The chair has invited two gentlemen from Boston, 
Mr. Ripley, vice-president of the Hide and Leather Bank, and Mr. 0. 0. 
Jackson. These gentlemen are now present and will address the 
committee. Mr. Eipley will first take the stand. 

Mr. Ripley. Mr. Chairman and gentlemen of the Committee on 
Banking and Currency, I appreciate it a high honor to be allowed to 
come and address your honorable committee on this subject. I realize, 
too, I trust, that your labors have already been long, arduous, and dili- 
gent, and I will endeavor to detain you but briefly. What I wish to do 
is this : I wish to set forth certain considerations that show to my mind 
conclusively that the issue of the demand notes by our Government, as 
s done at present, is vicious. 

In the second place, I wish to show what should be the safeguards 
under which another form of currency, much better and much safer, 
may be issued by the banks. 

And then I desire briefly to call attention to certain points in the 
bill produced by the honorable Secretary of the Treasury with which 
I have the honor to differ. 

~No civilized country desires, needs, and understands the use and 
advantages of a good paper currency for home circulation so well as the 
United States. By a good paper currency is meant, of course, a con- 
vertible one. While the u Greenback ers" are not all dead by any means, 
no one whose judgment in such matters is worth anything wishes to 
go back to the ante-resumption days and a gold premium. And any 
proposition looking to such an end needs no discussion; reason and 
experience condemn it utterly. !Now, our paper currency comes from two 
sources : first, the Government, which issues, or has issued, gold certifi- 
cates, silver certificates, certificates of deposits for legal tenders — a form 
of paper currency seen only in banks — old legal tenders of 1862, or 
" greenbacks," and legal tenders of 1890, or coin certificates; and sec- 
ond, the national banks, which issue their own notes in accordance 
with the United States law. The total amount of the Government 
issues outstanding is approximately as follows: Gold certificates, $65,- 
000,000; silver certificates, $338,000,000; old legal tenders, or " green- 
backs," $346,000,000; legal tenders of 1890, $152,000,000, a total of 
$901,000,000. (The certificates of deposit for legal tenders need not 
and must not be counted, as they simply represent an equal amount of 
u greenbacks" stored in the vaults of the United States subtreasuries.) 

Here, then, is at first sight an apparently enormous economy in the 
use of bullion. But there are items on the other side of the account. 
Every dollar represented by the outstanding gold certificates lies idle 
in the Treasury, either as coin or bullion; every dollar represented 
by silver certificates has a coined silver dollar in the Treasury to meet 
it; every dollar of the legal tenders of 1890 represents bullion lying in 
the Treasury vaults whose cost in dollars equaled the amount of these 
legal tenders at the time they were issued. In other words, the por- 
tion of our paper currency represented by the gold certificates, silver 
certificates, and legal tenders of 1890 represents no economic gain — bar- 
ring, of course, the fact that the silver is not worth as much as the paper 
issued against it ; in other words, the collateral is not good for the notes. 
The addition to the apparent stock of money in the country is counter- 



NATIONAL CURRENCY AND BANKING SYSTEM. 273 

balanced by the hoarded metal in the Treasury; the community gains 
in convenience and ease of handling, but there is no real economy. 

The old legal tenders,, or greenbacks, on the contrary, represent a 
real economy of capita], and the function of the Government in issuing 
them is totally different from its function in issuing the other forms of 
paper currency already described. In the latter case its part is essen- 
tially that of a warehouseman, issuing a negotiable receipt for goods 
deliverable to bearer: a warehouseman pure and simple in the case of the 
gold certificates, but with an all-important requirement in the case of 
the silver certificates and legal tenders of 1890, that of the act of Con- 
gress, 1890, which at the close of section 2 declares it to be "the estab- 
lished policy of the United States to maintain the two metals on a 
parity with each other upon the present legal ratio, or such ratio as 
may be provided by law." 

In the case of the greenbacks, on the other hand, the Government 
becomes a banker, having borrowed money or services of its citizens 
and given in return therefor its own notes payable on demand. It 
must in so far, therefore, be guided by sound banking principles and 
employ sound methods 5 all the more so because its liabilities are so 
tremendous, and its creditors take its notes under compulsion. Hence 
the need of an idle reserve of gold, and for no other reason; withdraw 
the cause and the Treasury needs only the funds to meet current 
expenses. 

It is perhaps outside the limit of the present paper to discuss at 
length whether it is sound and wise public economy for the Government 
thus to continue in the banking business. But a few facts may be 
noted, and all bear in one direction. In the first place, no first-class 
power has seen fit to follow our example. The note issues of England, 
France, and Germany are made by banks, not by the Government; even 
if the Government have, as in France, a voice in the management of 
the bank of issue, the bank's affairs are in the hands of trained 
financiers, not of a cabinet officer or legislative body. Again, the sys- 
tem under which the Government conducts its banking business is as 
badly adapted to the purpose as any that could be devised. Good bank- 
ing calls for sagacious, experienced, and prudent managers, carefully 
selected, armed with most ample discretionary powers, and able to act 
promptly and decisively in an emergency. Does our present system of 
Government banking meet any of these requirements'? The history of 
the past two years gives convincing answer. 

Again, the Government has no means of adjusting the amount of its 
banking reserve to the demands of the time. It can not call in and 
cancel its notes when the supply is abundant, but must pile up idle 
reserve; it has no quick assets which it can convert speedily to meet 
gold withdrawals, but must see its reserve dwindle at the very time 
when it should be strong. Its only way of getting rid of a surplus is 
by lavish expenditure, of increasing low reserves by selling bonds — 
borrowing in another form — or by increased taxation. And all these 
remedies have two cardinal defects: They require the sanction of the 
legislative body, and they are slow of execution. The reserve held by 
the Government under the existing system is, therefore, almost sure to- 
be either too large or too small. In the one case the economic waste 
is out of all proportion to any possible advantage; in the other the 
people pay far more for the anxiety and dread which the diminished 
reserve inspires than they can save in taxes by lending the Govern- 
ment some three hundred millions without interest. The Treasury 
NAT CUR 18 



274 NATIONAL CURRENCY AND BANKING SYSTEM. 

becomes a possible and potent factor in the market; what that may 
mean is best shown by such scandals as the gold scandal of Black Fri- 
day, in October of 1809*. And to-day it is both possible and easy for a 
body of speculators for the fall to work havoc; in the market by with- 
drawing gold lor shipment, playing upon the fears already aroused by 
the notoriously weak position of the Government's reserves. 

But even were it advisable that the Government should continue its 
banking business, there is a grave defect in the currency thus issued. 
The supply is, under existing laws, absolutely inelastic, understanding 
by elasticity the capacity to expand and contract in accordance with 
the demands of trade. This is obviously true of the gold and silver 
certificates; they can be canceled only on the release of the same 
amount of coin to take their place ; they can be issued only upon deposit 
of coin to be hoarded in the Treasury ; in fact, no new gold certificates 
are at present issued. The legal tenders of 1890 may be paid in coin 
and canceled, but can not be increased. The issue of greenbacks is 
by law (approved May 31, 1878) kept at a fixed amount, and when 
redeemed they must be reissued. But whether needed or not, the 
Government notes must be kept alive, and can not be retired when the 
commercial demand is over; they become in dull times a (dog and a 
menace in rendering gold exports so much the easier. 

And in point of elasticity our national-bank notes are but very little 
better than the Government paper issues. True, they may be and are 
presented for redemption in large amounts. But the conditions of 
their issue preclude the issuing bank from either withdrawing them 
freely or increasing their number. TSo bank cares to run the risk 
involved in constant purchases and sales of Government bonds; for 
even if the price fluctuates but slightly, a very small change is enough 
to convert a profit on the circulation into a loss. And when money is 
close the banks, as a rule, have no funds to spare to lock up in Govern- 
ment bonds for the sake of getting a reduced amount of currency. It 
is true that the national-bank note circulation was enormously increased 
during the months of August and September, 1893. But two things 
must be borne in mind in that connection: First, that it was done at an 
expense which would have been prohibitory except in a time of panic; 
and second, that it could never have been done at all had the banks 
had to pay cash for the bonds; in other words, had the banks at the 
time settled their clearings in cash. Only clearing-house loan certifi- 
cates made bond purchases possible at all. 

To sum up, therefore, our Government paper issues furnish us an abso- 
lutely inelastic currency, with very small economy of metal and with 
very grave risks and dangers to the whole country, which form a 
necessary and inevitable defect in the system. Our national- bank note 
issues, while possessing the essential requisite of security, are almost 
equally inelastic, and call for a tremendous locking up of capital in a 
form of assets which must be sold to be liquidated. 

The prime requisite for a circulating note should be that it is secure, 
and all the cries of " wildcat" and "red-dog" currency, which were so 
loudly heard from the opponents of repeal, sprang from a fear, either 
real or feigned, that we were in grave danger of going back to ante- 
bellum conditions. The cries were really a gross injustice to the busi- 
ness sense of the community, a vastly different thing from its political 
sense; as if we had progressed so marvelously the past forty years, 
and yet learned nothing of banking. A reason for the outcry was 
sought for in argument like this: The note holder is now secured by 

* See Yale Review, vol. 3, p. 8, May 1894. 



NATIONAL CURRENCY AND BANKING SYSTEM. 275 

tlie obligation of the Government at 90 per cent of its par value. What 
better security can the note holder, what better asset can the bank 
have than this ? But in just this point consists our progress— Ave have 
learned that a bank can have better assets than Government bonds, 
which will make the note holder as certain of ultimate and more certain 
of immediate repayment. A note-issuing bank's best assets are its 
good business notes, falling due and paid each day. So long as the 
makers are solvent a bank is in far better position to pay circulating 
notes from its bills receivable than from any kind of bonds for which 
it must find a market. 

And the same objection holds true, only with far greater force, of all 
the divers substitutes proposed for the Government bond as security 
for circulating notes, whether State, county, city, or railroad bonds. 
All these forms of security lack in greater or less measure the wide 
credit and steady market which the obligations of our Government 
enjoy. 

But it may properly be urged that under our present system the 
security for the holder of national-bank notes is in the hands of a third 
party, the Government, whereas were notes issued by the banks on 
the security of their own assets it might well happen that, in case of 
any trouble in the issuing bank, the security would be found to have 
disappeared, bad assets having taken the place of good ones. Grant- 
ing the objection, let us see how the difficulty is to be avoided. 

Any system of note issue must be a national one. By. that is meant 
that the laws governing the issue of circulating notes must be made 
b}' Congress, and not by the several State legislatures; that all the 
conditions and regulations as to issue, redemption, and withdrawal 
should be defined and controlled by a department of the National 
Government, and that the notes themselves should be printed and fur- 
nished by the Government alone. 

These matters can not, with any safety, be left to the several States. 
For, in the first place, it is indispensable that the currency should be 
uniform in quality, not varying from good to bad. We have been so 
long free from the necessity of having to scrutinize and value each 
bank bill that a return to such conditions would be intolerable. And 
such uniformity can only be attained under United States laws. In 
the various States at present we find great diversity in the banking 
laws as to payment of capital in full ; as to the additional liability of 
stockholders for an amount equal to the amount of their capital; as to 
the amount which any bank may loan to directors and to individuals; 
as to cash reserve; as to loans on mortgage of real estate; as to public 
reports of condition, examinations, and inspections; as to treatment of 
the assets in insolvency. But for note-issuing banks at least the laws 
governing these matters must be uniform and made by Congress, else 
the differences in the note security will be so great as to give -us, from 
the very outset, good notes and bad notes, which only the expert can 
distinguish. One of the most potent factors in building up our present 
national banking system has been the fact that they are all chartered 
and operated under the same laws. The word ' " national,' 7 as applied 
to a bank, gives some clue to its organization and management, and 
our whole vast system of internal exchanges would never have grown 
so rapidly or attained such enormous proportions without this. 

A speedy and uniform system of redemption is also a prime requisite 
for any system of circulating notes, and this must be furnished by the 
National Government, as is done at present in the case of the national- 
bank notes. And the notes must be printed and issued to the banks 



276 NATIONAL CURRENCY AND BANKING SYSTEM. 

by the Government. In no other way can we secure uniformity of 
design, execution, and general appearance; and in no other way can 
we guard against the possibility of overissue or illegal issue on the 
part of some bank, and reduce the danger of counterfeiting to a min- 
imum. 

An issue of uncovered notes, that is, of notes for the redemption of 
which no specific security is pledged, would unquestionably be safe, 
so far as the public is concerned, if made under national legislation 
embodying the above conditions. The privilege should be granted to 
no banks of less than $50,000 capital, or whose capital is not fully paid 
up; to no banks whose stockholders are not liable for an additional 
amount equal to their share of the bank's capital ; to no banks which 
loan on mortgage security or for a length of time greater than six 
months; it is of vital importance that the assets of a note-issuing bank 
be kept quick. 

Such notes must further be an unquestioned first lien on all the assets 
of a bank in case of insolvency. The issuing bank must further undergo 
thorough and frequent examinations by a Government examiner, and 
publish full reports of its condition. And as an additional and com- 
plete security, the issuing banks must be taxed at the outset to estab- 
lish a guarantee fund, out of which the Government should pay the 
notes of a failed bank, supposing — what would rarely be the case — 
that the assets of the bank and the sum derived from the sharehold- 
ers on account of their double liability should prove inadequate to 
do so. Experience in the past has shown conclusively that a guaran- 
tee fund of 5 per cent of the total outstanding circulation would be 
amply sufficient for this purpose; and when once the fund had reached 
that point, the tax might be suspended until the fund should need 
replenishing. 

Another important point must be considered: The question of taxa- 
tion of such note issues. The - national banks at present pay a tax of 1 
per cent per annum on their outstanding circulation; and this tax, 
coupled with the premium on the bonds which must be deposited before 
circulation can be taken out, reduces the profit on any such circulation 
to such a low point that many conservative banks prefer to take out no 
circulation at all. And no bank can be expected to issue notes unless 
it sees a profit in so doing. A bank which puts out notes must be ready 
to redeem them, and to do so must carry idle reserve and keep its assets 
quick and well in hand. All this means a diminished return to the 
bank, which can only be made good by the profit to be derived from its 
circulation. A fair return must be had for the loss thus incurred and 
the risk run; else the conservative bank will decline to issue notes, and 
leave this business to the very banks which should not be encouraged 
to go into it. 

But, on the other hand, the privilege of note issue should not be made 
a monopoly which brings in extravagant profit to those enjoying it. 
Much wild and foolish talk has been indulged in as to the value of this 
privilege to our national banks, and a reason for the prejudice which 
exists against the national-banking system is doubtless to be found in 
the current belief that it has been a source of great profit to the banks. 
But it is certain that a far greater profit was derived by the banks from 
the appreciation of the bonds on which the circulation was based than 
from the circulation itself; and, in buying these bonds, the banks took 
the same risk and ran the same chance as the individual purchaser. 
And, whatever may have been the profit derived from circulation in the 
fifteen years following the war, it is safe to say that the present genera- 



NATIONAL CURRENCY AND BANKING SYSTEM. 277 

tion of bankers for the past twenty years have known little or nothing 
of it. 

This subject can not be left without noticing a popular and widespread 
delusion which must be energetically coinbatted and denied, viz, the 
per capita theory as to the necessary amount of currency. Even the 
simplest and most plausible statement of this belief, that a certain 
determinable minimum amount of currency per capita is necessary for 
the country's business can not be assented to in this form. It is quite 
conceivable that population and business may increase and yet the 
need for and use of currency decrease. Suppose a small town without 
banking facilities; each inhabitant must carry an idle sum of money 
(greater or less) and settle most of his daily transactions with it. But 
suppose that with the advent of more settlers a bank is started and 
gathers in as deposits the cash which has been previously hoarded by 
individuals. The bank carries, as cash reserve, adequate for its busi- 
ness, only 10 to 20 per cent of the total deposits; the people settle their 
transactions largely by checks, and the result is that more business is 
done, and better done, with less money than before. The same holds 
true of the country at large. Few who understand the subject at all 
will hesitate to say that the growth of banks and the spread of bank- 
iug intelligence throughout the people has nearly if not quite kept pace 
with the increased need for currency which. might arise from a larger 
population and greater business. 

I have submitted certain considerations, as I said in the first place, 
showing the viciousness of the issue of Government notes. 

In the second place, I have endeavored to state what I believe to be 
safeguards, and requisite safeguards, in the event of any legislation 
which shall allow the banks to issue notes against their own assets held 
in their own possession. 

As to the bill submitted by the honorable Secretary of the Treasury, 
I wish to brief y call attention to two or three points in connection 
with it. 

Sections 10 and 11, dealing with the question of State banks, seem 
to me faulty, and I can not approve the bill it those sections shall 
remain in it in their present form. 

In the first place, it seems to me that the opportunity afforded for 
counterfeiting will be extremely great, and that the door will be thrown 
very wide open. The state of the case is this: The eleventh section of 
the Secretary's bill says that Government paper may be furnished to 
State banks for their use in printing notes under such regulations as 
the Secretary may see fit to impose, but there is no requirement that 
such paper shall be furnished. Therefore, a State bank may appar- 
ently print a perfectly valid note in any form and on any kind of paper 
it may select. That being the case, I have no hesitation in saying or 
maintaining that, in my opinion, it would be exceedingly easy lor coun- 
terfeit notes to be printed in one section of the country to be put in cir- 
culation in other sections, or for notes of wildcat banks to be organized 
for no other purpose than to put out such notes, and the authors escape 
with their funds before the matter be found out. In other words, it 
will allow an opportunity for a return to the worst form of wildcat 
banks, as we knew them in the days before the war. I do not mean to 
say that such frauds could not be much more easily detected and run 
to earth than they then were, because communication is much more 
direct and rapid, and intelligence is much greater. Yet, at the same 
time, I consider that a possibility which is very serious and which to 
my mind entirely vitiates this section. 



278 NATIONAL CURRENCY AND BANKING SYSTEM. 

I liave a further matter to bring up in connection with that. 

Mr. Black. Would it meet your objection on that point to make 
that requirement comiralsory? 

Mr. Ripley. What requirement? 

Mr. Black. That they shall take that paper from the Government. 

Mr. Eipley. Not wholly, I think. The bill must be made over, if I 
may be allowed the remark, because, apart from this small permissive 
feature of the bill, there is the additional requirement that the notes 
shall not be like those of the national banks 5 in other words, that we 
shall have a varied currency, in many hands, like that of our national 
banks, with no one to look to see who issues it. 

Mr. Johnson, of Indiana. Is it the character of the paper upon 
which the notes are printed that makes them difficult to counterfeit, 
or is it the character of the engraving? 

Mr. Ripley. I am not sufficiently an expert to answer. I under- 
stand that the officials of the Bank of England think that from their 
experience the only safeguard is distinctive paper, and they have that 
supplied. On the contrary, in this country, we believe that the best 
protection is secured by the geometric lathe and by the design. 

I think we shall have a vastly greater number of objections made to 
the provisions of that section. 

It further seems to me that the notes issued by the State banks, if 
there be no further requirements made of them than are proposed in 
this section, will be from the outset discredited. The notes of a 
national bank, under an earlier section of the proposed bill, will be 
secured by the 30 per cent guarantee fund of the batik itself, and by 
the 5 per cent safety fund to which all the other banks must contrib- 
ute, and by the liability on the part of the stockholders to make good 
any deficit. In other words, a note of a national bank has behind it 
the guarantee of the safety fund of all the banks, and of the 30 per 
cent guarantee fund of itself. A note of a State bank issued under 
this proposed section, so far as I can see, would have solely the guar- 
antee of the 30 per cent deposit made by the State bank and of the 
assets and double liability of the stockholders of the bank. There is 
no provision for a 5 per cent safety fund, though that may be required 
by the State law, and there is no grouping of the banks to sustain one 
another. 

I consider, as I have said, that this law will give rise at the outset 
to a discrimination between the two classes of notes, and I consider 
that principle faulty and objectionable. 

The provision of the fourth section of the Secretary's bill also does 
not commend itself to me as it stands. That is a section which has to 
do with the question of the redemption of notes. The provision is that 
the national banks shall redeem the notes issued as therein provided, 
at home, or at home and at some agency. There is no requirement 
there that the banks shall keep an agency. The banks may elect to 
redeem solely at home. It seems to me that this is going back to a 
method in banking which the banks have been doing their best for 
many years past to discard. We have come to adopt a system of clear- 
ings so far as possible, and we use every opportunity to extend that 
system. For years we have been operating under the system of clear- 
ing our bank notes through the central agency at Washington, the 
department for the redemption of national currency This section, it 
seems to me, asks us to go back to the old plan — to illustrate by the 
subject of checks — whereby, instead of presenting our checks at one 
place (the clearing house) and there settling with all the banks at once, 



NATIONAL CURRENCY AND BANKING SYSTEM. 279 

we shall have to take each cheek around to the bank on which it was 
drawn. The possibility is that in the case of these notes we may have 
to do the same; in other words, send the notes around to the bank by 
Avhich they are put out in order to have them redeemed. It seems to 
me that that is going* back to an antiquated method and that it is 
going to necessitate an increased cost to the banks and to the people, 
and that the people will be exceedingly intolerant of it. That feature, 
looked at from the point of view of the future, 1 feel is an objectionable 
one. 

* There is one further point that I have not seen raised in any of the dis- 
cussions, so far as I have followed them in the papers, and that is this: 
At present the national-bank notes are legal tender between the banks; 
that is, a national bank must accept from me national-bank notes in 
dischnrge of m\j liability, and I say with perfect frankness that I have 
no objection to doing so. But suppose this law shall be passed in the 
form in which it is presented in the bill before us. I have not noticed — 
it may be that I have overlooked it — any provision for repealing that 
provision of the law making national-bank notes a legal tender between 
national banks. At the same time I consider that it would be distinctly 
questionable to continue that feature of the law with a circulation 
based on so entirely different a theory as the one proposed in the 
Secretary's plan. I understand that at present a national-bank note 
is perfectly secure. I understand that I have the promise of the 
Government behind me at 90 cents on the dollar. But here it is pro- 
posed to allow banks to issue notes based on their own assets. As 
this proposition is now it will be a serious question whether the banks 
can be got to go into the system largely. 

Mr. Cox. As I understand you, you think this system of legal-tender 
notes continually running into the Treasury for the purpose of draw- 
ing out gold is vicious? 

Mr. Ripley. Essentially vicious. 

Mr. Cox. What would you do about it? 

Mr. Ripley. I should get the greenbacks out of the way. 

Mr. Cox. How? 

Mr. Ripley. I ought to say honestly that I came here rather to crit- 
icise than to lay down any definite system. 

Mr. Cox. We are in a different fix, however. 

Mr. Ripley. I admit that; but I do not feel myself competent to 
answer that. 

Mr. Cox. So you have not provided anyway for doing anything with 
the greenbacks? 

Mr. Ripley. The greenbacks are the nation's debt. 

Mr. Cox. I understand that; but I say you have not matured any 
plan for doing that? 

Mr. Ripley. I should like to see the Government pay its green- 
backs. 

Mr. Cox. Had we the money there would be no trouble about that. 
But, passing from that point, let me put this question to you in regard 
to State banks: If the note of a State bank is made absolutely good, 
as good as the note of a national bank, have you any objection to it? 

Mr. Ripley. Xot the slightest. I would say amen heartily to that 
provision. 

Mr. Cox. Xow, we have got together on one point. 

Mr. Ripley. The only objection I would have to such a proposition 
is that it seems to me to be unfair to the State banks. 

Mr. Cox. Wait a moment. We agree, and when we agree that ends 



280 NATIONAL CURRENCY AND BANKING SYSTEM. 

it. Do you think it possible that a State bank could put out its notes 
in competition with the notes of a national bank, which we assume to 
be good, and ever be able to pass its notes over its counter unless 
they were as good as national -bauk notes! How could that be done'? 

Mr. Ripley. Let me see if I understand that. 

Mr. Cox. I will repeat it. 

Mr. Ripley. If you please. 

Mr. Cox. I will make it as plain as I can. 

Mr. Ripley. Thank you. 

Mr. Cox. You have a national bauk in your city, and by your door 
a State bank. Now, assume an issue of notes of doubtful value from 
that State bank. You know that your national-bank note is good. 
How would it be possible for me to pay anybody that I owed with a 
note of that State bank, which is a depreciated note, when he knows 
that he could just as well have a note issued by the national bank next 
door? 

Mr, Ripley. You can not do it if the man understands it. That is 
the trouble. 

Mr. Cox. It has to go to the ignorance of the man to whom I offered 
to pay it. 

Mr. Ripley. So far as I understand it. If people are enlightened 
there is no trouble, but the difficulty is that people are ignorant about 
such matters. 

Mr. Cox. Do you really think that the Government of the United 
States has to take care of the intelligence of its people? 

Mr. Ripley. That is a wide question. 

Mr. Cox. Well, let us pass from that, then, and let us come back 
a moment. The Secretary's bill provides that the State bank shall 
deposit 30 percent of its capital stock in legal-tender notes; that is 
the first requirement. The next one is that the note holder shall have 
a first lieu upon all the assets of the bank; that is the second one. 
The third is that the stockholders shall be liable individually to the 
extent -of their stock. Now, I ask you as a banker, would not that 
secure the note of any bank of issue in the world if the proposed law 
were honestly administered? And there is a limitation of circulation, 
too. 

Mr. Ripley. I think I understand that now. 

Mr. Cox. Let me go over it again. I will put it in a different shape. 
The State bank has a circulation of 70 per cent. It deposits to secure 
that circulation 30 per cent in legal-tender notes of the United States 
in the hands of a Federal officer. It then has a first lien upon all the 
assets of the bank. It then has the liability of the stockholders. Now, 
1 ask you as a banker, would not any note issued under such conditions 
as that be absolutely good ? 

Mr. Ripley. I will be very frank to answer that. In the first place, I 
am not sure whether the Secretary's definition of "a corporation doing 
exclusively a banking business" may uot be held to include a corporation 
that loans money on land security. I hold that any corporation doing a 
banking business on real-estate security should not be allowed to issue 
notes. In themselves, loans on real estate are very good, aud I have no 
objection to them. In our State we encourage savings banks to lend 
money on real-estate security. At the same time, for a note-issuing 
bauk, I think that is the last thing it should do. 

Mr. Cox. That answer necessarily goes to the administration of the 
bank and the character of its loans, does it not? 

Mr. Ripley. Yes, sir. 

Mr. Cox. Now, come back with me again. You have no doubt heard 



NATIONAL CURRENCY AND BANKING SYSTEM. 281 

of clearing-house certificates in New York during' the panic. They 
were good, were they not"? 

Mr. Kipley. I should have taken them if I had been in New York. 

Mr. Oox. There was no express statute for the issuing of those 
notes? 

Mr. Eipley. No, sir. 

Mr. Cox. Do you think a banking association in the city of New 
York or in the city of Boston is safer, for the issuance of currency, 
than a State? 

Mr. Eipley. I do not understand just what you refer to by " State." 

Mr. Cox. Take any 10, 20, or 30 banks in the city of New York, taking 
out a circulation of the same kind, call it clearing-house certificates or 
whatever you please. You say they are good. Do you not think that, 
if you intrust that power to banking associations, you can very well 
intrust the very same power to a State legislature ^ 

Mr. Eipley.' Pardon me. There is this difference, which is very 
important: The clearing-house certificates were issued only on the 
specific pledge of approved assets for an amount considerably more 
than the par value of the notes. 

Mr. Cox. There is no doubt of that, but do you think that any State 
legislature in the United States would authorize a corporation to go 
out and practice a fraud in the issue of notes? 

Mr. Eipley. No, sir; I hope not. 

Mr. Cox. Then does it not come back to the matter of legislation at 
last? 

Mr. EiPLEi". It is not a question of fraud, so much as it is a ques- 
tion of wisdom, and in the matter of wisdom I think the States are 
different. 

Mr. Cox. Your city is a very rich one? 

Mr. Eipley. There have been some losses recently in the city of 
Boston. 

Mr. Cox. Boston is not alone in that, by a good deal. But take an 
agricultural community where the principal wealth consists of real 
estate. It has no bonds, it has no stocks, it has no collaterals to use 
as you do in your city. If a bank organizes in such a country as that, 
and puts itself under the restrictions contained in the bill introduced 
by the Secretary, do you not think such a bank, with such restric- 
tions upon it, would be of vast importance and utility to such a country 
as that ? 

Mr. Eipley. Doubtless of importance and utility, but I am not pre- 
pared to grant that the notes would be good. 

Mr. Cox. Wait a moment. Suppose you establish such a bank as 
that with these kinds of restrictions and limitations upon it ; does not 
that come in competition with the great money centers of this country 
to the extent of the money it uses in its own locality? 

Mr. Bipley\ I do not quite apprehend. 

Mr. Cox. We borrow money of you every year. Now, if we can 
furnish that money at home, money that suits us for circulation, that 
comes in competition with you, does it not? 

Mr. Eipley'. I doubt if our money would go out there, except 
through people we know. 

Mr. Cox. Suppose we furnish ourselves with a currency that we our- 
selves are satisfied with, then that destroys the use of yours? 

Mr. Eipley; 1 beg pardon. I do not understand. 

Mr. Cox. I say, that if we establish a currency in our country, 
always assuming that the note is good and will be redeemed 

Mr. Walker. Finally redeemed, or immediately 8 



282 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Cox. Any way; I do not care anything about that, so it is good. 
Then we use that note. That destroys the necessity for us to borrow 
your money as long as we have money of our own to borrow, does it 
not? 

Mr. Ripley. I should say that if the notes are good 

Mr. Cox. I have assumed the notes to be good. 

Mr. Ripley. Yes ; I say 

Mr. Cox. Do we not come in competition with your money in such a 
case? Do we not come in competition with the money of the great 
money centers of the country ? 

Mr. Ripley. Yes, sir; I think so. 

Mr. Cox. Then there would be a personal interest in opposition to 
establishing such banks with good circulation ? 

Mr. Ripley. I think not, sir. 

Mr. Cox. None in the world! 

Mr. RiPLEY r . No, sir. 

Mr. Cox. So your interest is not controlling the great monev centers 
at all? v 

Mr. Ripley. I do not speak for the great money centers; I simply 
speak as an individual. 

Mr. Cox. Now, coming back to the first proposition: If we can make 
our notes, under proper restrictions, as good as your national-bank 
notes, so that they will circulate side by side in the transaction of 
business, can there be any objection to them whatever? 

Mr. Ripley. No, sir; but I think you beg the question that I raise. 

Mr. Cox. I assume that we can do it, and vou assume that we can 
not? 

Mr. Ripley. Yes, sir ; I do, under existing conditions. 

Mr. Cox. You do not think, then, that a State can make a State-bank 
note good? 

Mr. Ripley. Pardon me, that is not my point at all. My point is 
this: The bank notes, to be good, should be of uniform quality, issued 
under uniform regulations. At present, as I understand it, the laws of 
States governing banks differ widely as to their capital being paid in. 

Mr. Cox. Then they would have to change their laws? 

Mr. Ripley. Then I go to the point I raised, as to whether they 
would lend money on real estate security. 

Mr. Cox. I do not care to go into that. But do you not know, as a 
matter of history before the war, that the best security in the United 
States was real estate? 

Mr. Ripley. I do not know that, sir. 

Mr. Cox. That nine-tenths of the capital of banks was loaned on 
real-estate security? 

Mr. Ripley. I do not consider it good banking to make, loans upon 
notes secured by real estate. 

Mr. Cox. Would you create a banking system that discriminates 
against real estate as a security and say that it is not good security for 
loaning money upon, but that stocks and bonds are? 

Mr. Ripley. Pardon me a moment, if you please. I have not 
intended to say that at all. I have said that in my opinion a bank that 
issues notes should not loan on land. 

Mr. Cox. In other words, it is not good for the banks ? 

Mr. Ripley. I did not say that, sir: I beg your pardon. 

Mr. Cox. Now to my point. If you discriminate in your national 
banking system and say you will not loan on real estate, whether it is 
for the interest of the bank or not good policy to do it, but go upon 
the plan and pursue that plan of loaning your money upon quick com- 



NATIONAL CURRENCY AND BANKING SYSTEM. 283 

niercial paper or collateral bonds and stocks, have you not discrimi- 
nated against real estate as security ? 

Mr. Ripley. Not as a note-issuing bank must. 

Mr. Cox. Do you not depreciate the value of real estate and appre- 
ciate the value of collaterals? 

Mr. EiPLE\ r . Do not understand that that is my business at all. 

Mr. Walker. You said it was an objection, if I understood you, to 
the Carlisle plan that it compelled the State-bank notes to differ in 
appearance from the national-bank notes. 

Mr. Ripley. That is a minor objection, and one that I did not mean 
to raise. 

Mr. Walker. I did not ask whether it was a minor or major objec- 
tion. 

Mr. Ripley^. Pardon me, I was discussing the probability of coun- 
terfeiting; that was the point. I was making the point that, under the 
bill as I read it, counterfeiting would be possible and likely; and that 
was one of the points of the discussion in connection with it — that it 
allowed of a multitudinous variety of notes. Instead of notes that are 
similar in appearance, it would allow notes of so many different kinds 
that the public would not be able to discriminate between the good 
and the bad. 

Mr. Walker. Would your objections to State banks be at all modi- 
fied if their bills were as little likely to be counterfeited as those of 
national banks ? 

Mr. Ripley. That would remove a difficulty. I am not prepared 
to say that it would remove all objections. 

Mr. Walker. Would it remove any material difficulty? 

Mr. Ripley. Yes, sir ; I think so. If there were no more possibility 
of counterfeiting under the proposed plan than there is under the 
present law, I think that would remove a material difficulty. 

Mr. Walker. Then, if I understand you, as a banker the first thing 
that strikes your mind as an objection to a State bank is not that it 
might locate in the woods a thousand miles from anywhere, and redeem 
its note over its counter only, but it is on the ground of the liability of 
counterfeiting its bills? 

Mr. Ripley. I did not mean to give that impression, sir. 

Mr. Walker. What is the principal objection to State-bank bills, if 
there is any other than counterfeiting? 

Mr. RiPLEY r . I endeavored to bring out a further objection along the 
line that you have just raised, that the bills will come out under vary- 
ing laws governing security, governing the character of tlie bank's 
loans, and therefore differing very markedly from the bank notes which 
are issued by banks enjoying a uniform law. ■ 

Mr. Walker. I understood you, in reply to a question asked by the 
honorable gentleman from Tennessee (Mr. Cox), to say that you could 
not make a man who knew his business take an inferior money in pay- 
ment of a debt. 

Mr. Ripley". Did you understand that those were my words? 

Mr. Walker. Very nearly those; equivalent. Though you may put 
it in any language you choose. 

Mr. Ripley. I did not mean to give as broad an answer as that, pos- 
sibly. A man will frequently take 50 per cent on the dollar because he 
can not get the other 50. But if he had a choice, and could enforce that 
choice, he would want his pay in the best. 

Mr. Walker. You change the conditions by your answer. 

Mr. Ripley. If I have made any answer in the form you indicate, I 
am certainly very glad to have had an opportunity to correct it. 



284 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. Is it not a fact that if a man offers you money for goods, 
you can accept or decline the money? But if you had any experience 
before the war, such as I have had, when a man owes you money on an 
obligation, in ninety-nine cases out of a hundred you would be obliged 
to take the money he offers, or sue him, and it might be the case of 
suing a beggar and catching a louse. Do you know anything about our 
experience in the East before the war, or have you heard it? 

Mr. Ripley. I do not. I do not think I have heard enough to know 
positively, and I have had no experience of my own. 

Mr. Walker. Is it not a fact that when a man holds a note against 
another, to whom he has sold goods, he is practically obliged to take the 
money that is oifered, or make a discount on his note? Does it not come 
down to practical insolvencj^ of the man who owes the money, else that 
the man who owes it must be allowed to pay in whatever money he 
has? 

Mr. Ripley. I should not be willing to make any general statement 
on that line. 

Mr. Walker. You were asked by Mr. Cox also whether it is safer 
for a bank to issue notes than for a State to issue notes? You did not 
reply directly to that. 

Mr. Ripley. There would be a point as to whether you refer to ulti- 
mate payment or immediate payment. A bank, I take it, is an insti- 
tution 

Mr. Walker. Wait a moment. Do we talk about ultimate payment 
in talking about whether a bank note is good or bad? If it is not 
instantly redeemable in coin it is a bad note, is it not? 

Mr. Ripley. Yes, sir. 

Mr. Walker. Keeping that in mind, 1 will ask this question that 
Mr. Cox asked you: Is a bank safer to issue notes than a State to issue 
notes? 

Mr. Ripley. That depends entirely on the bank. I should say a 
well-managed bank could issue and pay demand notes more easily than 
a State can, unless the State finances are run for the purpose of paying- 
notes. 

Mr. Walker. What do yon mean by "more easily?" 

Mr. Ripley. Pay them immediately on presentation. 

Mr. Walker. The moment a bank note is not paid immediately on 
presentation it ceases to be money, does it not, and becomes an obliga- 
tion like an individual note? 

Mr. RiPLEY r . We used the legal tenders for some years, and they 
were not paid immediately on presentation. 

Mr. Walker. And that put gold at a premium. They were poor 
money, were they not? . 

Mr. Ripley. Yes, sir. 

Mr. Walker. Then a bank note that can not be redeemed in coin at 
once is poor money, bad money? 

Mr. Ripley. In my opinion it is. 

Mr. Walker. Then I will ask the question again. I want to get 
down to that, if I can. Is a bank safer to issue notes than a State to 
issue currency notes? 

Mr. Ripley. I do not think I understand what is meant there by the 
word " safer." 

Mr. Walker. You spoke about local State money competing with 
Eastern money. As I understood you, you said that if they issued local 
State money it would compete with Eastern money. Would it not 
always be at a discount, and must it not necessarily be so? 

Mr. Ripley. If it got into the East it would doubtless be subject to 



NATIONAL CURRENCY AND BANKING SYSTEM. 285 

the expense of collection and loss of interest during transit, but at the 
same time it might be good. 

Mr. Walker. What do you mean by good? 

Mr. Eipley. Payable on presentation. 

Mr. Walker. Do you mean payable at the counter, or at some other 
point? 

Mr. Eipley. It makes no difference where it is paid, so long as it 
costs nothing to get it paid. 

Mr. Walker. Does it cost any more to get a note paid a thousand 
miles from Galveston, Tex., than it does to get it paid in the case of a 
bank in Boston? 

Mr. Eipley. Pardon me; that is exactly what I had reference to — 
express charges and loss of interest in transit* 

Mr. Walker. Then instead of sending it for collection you would 
be apt to take it to a broker and sell it at a discount, and he would 
send it home for redemption. Is not that the policy always pursued 
by banks? 

Mr. Eipley W T e have had none of that kind in my experience. 

Mr. Warner. The Secretary's plan provides for a 30 per cent green- 
back deposit. Do you consider that necessary for the safety of the 
notes proposed? 

Mr. Eipley. My opinion is that the theory of a safety fund in bank- 
ing would be much better met by requiring no deposits whatever of 
greenbacks. At the same time, we are going from one theory to another 
quite the reverse, and it means a considerable change in the public 
mind. A considerable educational process has got to be gone through 
with. There is no doubt, I think, that the public would feel safer know- 
ing that there was an actual deposit of cash covering bank notes 
issued. In so far, I do not at present object to that. As a lasting pro- 
vision I should probably, but at present I do not object to it. 

Mr. Warner. As a banker you do not consider it logical, though in 
view of public opinion it may be desirable? 

Mr. Eipley. I think so. That expresses it. 

Mr. W 7 arner. You made a suggestion, I believe, that it was desira- 
ble to have a better provision for redemption than that which you 
understood was proposed in the Secretary's bill. Do I understand you 
that you imagine that any considerable number of banks in themselves, 
or any considerable bank in itself, would not arrange for better redemp- 
tion of their notes than that? 

Mr. Eipley. I think they would have to. 

Mr. Warner. Or the notes would not go out? 

Mr. Eipley. Exactly. 

Mr. Warner. Then, is it a serious objection that the law does not 
require it? 

Mr. Eipley. Always providing, Mr. Warner, that the bank notes 
issued under the proposed act be not legal tender as between banks. 

Mr. W 7 arner. That is what I was coming to in the next point. 
Then, in your opinion, in case that provision were eliminated the 
banks would be likely, of themselves and without reference to the law, 
in order to keep their notes out, to provide very much greater redemp- 
tion facilities than are required by the Carlisle plan? 

Mr. Eipley. I can not conceive of redemptions being made under 
the bald requirements of that plan. 

Mr. Warner. You can not conceive that a bank could otherwise 
keep its circulation out or would try to '? 

Mr. Eipley. It is not possible. Xo bank that issued its notes in 
good faith would try to. 



286 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Warner. So that in all probability we would Lave very much, 
more extended facilities, whether required by law or not'? 

Mr. Ripley. In the conrse of time; yes. How long the process 
would be I can not say. 

Mr. Warner. You referred to that one feature of our present 
national bank circulation by which the notes are made legal tender as 
between the banks and in payments to them. What effect has that 
upon tbe elasticity of the currency? Does it not greatly reduce it, if 
not entirely? 

Mr. Ripley. I do not think our national-bank note currency at pres- 
ent could be called really elastic at all. 

Mr. Warner. How would it be if that provision were eliminated ? 

Mr. Ripley. It would make all the change in the world. 

Mr. Warner. Would it not make it more elastic? 

Mr. Ripley. Unquestionably so. 

Mr. Warner. Without regard to the redemption provisions? 

Mr. Ripley. If I have the privilege of refusing a national-bank 
note, it has got to go home a great deal faster than if I have not that 
privilege. 

Mr. Warner. Of how great comparative importance do you regard 
the provision in regard to greenback withdrawal? In other words, is 
it worth while for us to consider a currency plan without providing for 
it, or do you believe that we can provide a currency plan and then 
take up the other issue? 

Mr. Ripley. In my opinion, the retirement of the greenback is by all 
odds the important problem. I look on the question of providing cur- 
rency as secondary to that in importance. . 

Mr. Warner. As to the mutual-unlimited-liability provision of the 
Carlisle plan — you understand that? 

Mr. Ripley/ I understand it. 

Mr. Warner. Do you think that is necessary for the safety of the 
notes ? 

Mr. Ripley. With the 30 per cenc guaranty, I believe not. At the 
same time, it is asking for a prophecy that I feel is a little more than I 
want to give dogmatically. 

Mr. Warner. Do you consider that it would be much of a deterrent 
to banks that were considering whether they should come in under 
this system? 

Mr. Ripley. Undoubtedly. As I understand it, under the Balti- 
more plan the proposal is that the banks should be taxed at a certain 
specified rate to make good a deficit in the safety fund ; in other words, 
if a bank issues circulation under that plan it knows how much it has 
to contribute per annum, while under the Secretary's plan we do not 
know that. There would be some years when there would be no con- 
tribution required, and there would be other years, such as the year 
1893, when we might be called upon to contribute 5 per cent. 

Mr. Warner. Is the difficulty so much with regard to the probable 
amount of the contribution, or as to the vague character of the require- 
ment? 

Mr. Ripley. It is the vagueness of the requirement. My opinion is 
that banks would be far more willing to pay the higher tax, if they knew 
its certainty, but they would dread to make an uncertain jump into the 
dark. 

Mr. W t arner. Then your idea would be to eliminate that? 

Mr. Ripley. I have not been prepared to make that suggestion of 
elimination. 



NATIONAL CURRENCY AND BANKING SYSTEM. 287 

Mr. Warner. What are your Boston banks going to do; are they 
going to stay out, or will they come in? And how are we going to 
induce them to come in? 

Mr. Ripley. I can not speak for the Boston banks, but I can say 
that I do not believe the banks in any city to-day are ready to say 
whether they will come in or not. 

Mr. Warner. Do you think this would bother them but little, or is it 
something to take into serious account? 

Mr. Ripley. It is something that is to be taken into serious account 
in the two cities of Boston and New York, to go no further. 

Mr. Black. Would your bank hold out against it on that account 1 ? 

Mr. Ripley. I can not say. That is a matter for further canvass. 

Mr. Sperry. What would be your present judgment about it? 

Mr. BiPLEY r . I am a younger man than some of the directors, but 
personally I think I should be willing to do it. At the same time, I 
think the older men among the directors of my bank will hesitate. 

Mr. Johnson, of Indiana. You were asked by Mr. Cox whether or 
not you thought it possible that a State-bank note could be gotten over 
the counter if it were not as good as a national-bank note. Along the 
line of that question I want to ask you if the neces'sities of men and 
the exigencies of business are not such that very frequently they are 
compelled to take, and do take, in the course of business, depreciated 
bank notes when there are good bank notes in existence in the same 
neighborhood? 

Mr. Ripley\ I must answer yes to the question in that form. Beyond 
doubt, we take punched silver pieces and Canada coins. 

Mr. Johnson, of Indiana. The laborer, for instance, is very fre- 
quently compelled to take the kind of paper in which his employer 
may want to pay him, although it may not be the very best; or a man 
seeking labor may be required, as a matter of necessity, to accept 
depreciated paper in payment. Am I not right about that? 

Mr. Ripley. But all our money is about on a level, is it not? 

Mr. Johnson, of Indiana. I know that. But was it not the case, 
during the State-bank regime in this country, when depreciated paper 
circulated along with paper that was not depreciated; that one class of 
creditors was obliged to accept the one and another class obtained the 
other ? 

Mr. Ripley\ I have no doubt that was the case. 

Mr. Johnson, of Indiana. For instance, a creditor might be obliged 
to accept depreciated currency in payment of his debt if he knew he 
could not get anything else from his debtor. Am I right? 

Mr. Ripley^. I think that case might have arisen. 

Mr. Johnson, of Indiana. If bad currency did not exist, then of 
course he would obtain good. 

Mr. Ripley. There is no doubt about that — if he obtained any. 

Mr. Johnson, of Indiana. There is a very large scope, is there not, 
within which as to State-bank paper, as authorized by this bill of Mr. 
Carlisle, we omit restrictions which are put by his bill upon national- 
bank paper ? There are many provisions of the national-bank law which 
apply to national banks in Mr. Carlisle's bill, and which are not appli- 
cable to State banks. 

Mr. Ripley. I think I have said that. There are provisions which 
national banks must observe and which are not in the bill here. 

Mr. Johnson, of Indiana. You think that might cause a preference? 

Mr. Ripley. I endeavored to state that, that I thought there might 
be two classes of notes. 



288 NATIONAL CURRENCY AND BANKING SYSTEM 

Mr. Johnson, of Indiana. A preference begets inequality in the pay- 
ment of money, does it not ? 

Mr. Ripley. Yes. 

Mr. Johnson, of Indiana. Then, under a State-bank system the pro- 
visions of the laws of the various States with respect to bank issues 
might vary very greatly, might they not? 

Mr. Ripley. I have not read the laws of the different States, but 
they do vary; how much I do not know. 

Mr. Johnson, of Indiana. That would be likely to create a prefer- 
ence among the various kinds of State-bank bills, would it not? 

Mr. Ripley. Issued under the proposed bill, do you mean? 

Mr. Johnson, of Indiana. Yes. 

Mr. Ripley. Yes, sir. 

Mr. Johnson, of Indiana, Your point, as I understand it, is that it 
is safer to have circulating notes issued under the exclusive control of 
one set of authorities than it would be to have them issued, even with 
certain governmental restrictions, under the authority of a number of 
independent sovereigns? 

Mr. Ripley. I believe that the fundamental laws governing the cir- 
culation should be prescribed by the National Government, as I said in 
the paper I read. 

Mr. Johnson, of Indiana. It is much easier, I presume, for the busi- 
ness world to familiarize itself with one law under which a currency is 
issued for the whole country than it would be to familiarize itself with 
the laws of a number of independent States. 

Mr. Ripley. There is no question about that. I think that, for that 
reason, we may explain why the national banking system has spread so 
largely — because it was known under what conditions the banks were 
organized and operated. 

Mr. Johnson, of Indiana. Mr. Cox used the expression in his ques- 
tions, " money to suit us," referring to money to suit the individuals in 
some particular State. Can you conceive of any benefit which a State 
banking system would confer upon the people of any particular locality 
that could not be just as well conferred upon them by a properly 
devised national issue of money? 

Mr. Ripley^. 1 think gentlemen are apt to overrate the value of cur- 
rency issue, anyway. As I understand it, there are a large number of 
sections of the country which call for more currency, but it has always 
seemed to me that that call was defective; that it was not currency 
that was wanted, so much as capital, and that the incoming of capital 
was to be encouraged by sound banking as well as by other considera- 
tions. 

Mr. Johnson, of Indiana. Possibly you do not catch my question, 
or maybe I have not been very fortunate in my method of expression. 
Can you conceive of the want of the people living in any State in this 
Union which could not be supplied just as well by a national currency 
as it could by a currency under State law? 

Mr. Ripley. You mean a currency issued under laws laid down by 
the National Government? 

Mr. Johnson, of Indiana. Yes. 

Mr. Ripley. I believe that is the preferable way; not merely as good, 
but better. 

Mr. Brosius. Suppose you establish in Boston a bank with $100,000 
capital, under the Secretary's plan; you take out circulation up to the 
limit of $75,000; you make a deposit of 30 per cent on that, which is 
$25,500. That reduces your capital stock to $74,500. Then your circu- 



NATIONAL CURRENCY AND BANKING SYSTEM. 289 

lation of $7o,000, added, makes $149,500. You have the liability ol 30 
per -cent, and the double liability of your stockholders. Suppose your 
bank negotiates a great many very bad loans; many of the debtors of 
your bank become insolvent; a number of your stockholders become 
insolvent; and your cashier runs away with half of the capital. What 
becomes of the holders of your notes? 

Mr. Ripley. Under the conditions laid down, the holders of the 
notes, it appears to me, would have a hard time. 

Mr. Brosius. Under the existing conditions of our present national 
banking system, do you think they would have a hard time? 

Mr. Ripley. No, sir. 

Mr. Brosius. Then there is a liability here as to note holders losing 
the value of their notes in individual instances, such as have occurred 
within your knowledge in the last few years, unless there is either a 
Government liability behind these notes or a joiut liability on the part 
of the banks? 

Mr. Ripley. Yes, sir. It maj^ come to pass that, unless the safety 
fund be called upon, the individual bank issuing the notes may not 
have assets enough to meet them. 

Mr. Brosius. Then you must have security to cover such a case, 
must you not, in order to make every note holder in the United States 
feel sure that we will sustain no loss by reason of having such notes? 

Mr. Ripley. If we wish to introduce a system, or to continue our 
system, absolutely secure, so that the notes shall be absolutely secure 
beyond perad venture, by pledge of assets with somebody else, the pro- 
posed system is wrong. 

Mr. Walker. That answer is all wrong, so far as national-bank 
notes are concerned. Let the answer be read. 

The reporter read the answer, as follows : 

If we wish to introduce a system, or to continue our system, absolutely secure, so 
that the notes shall be absolutely secure beyond peradventure, by pledge of assets 
with somebody else, the proposed system is wrong. 

Mr. Warner. And the present system is all right? 

Mr. Ripley. Yes, sir. 

Mr. Sperry. If I correctly understand you, it is your opinion that 
the banks would not operate under the Carlisle system, for the several 
reasons you have specified? 

Mr. Ripley. May I correct? I have endeavored to give you my 
individual opinion, but I dare not form an opinion as to what the banks 
will do. 

Mr. Sperry, I understood that you thought they would not, for the 
several reasons you specified. 

Mr. Ripley. I said that in my opinion the difficulties in the bill, 
which I tried to specify, would operate against it, but I do not wish to 
go on record here as predicting positively the action of banks. 

Mr. Sperry. You are giving us your opinion of its probable effect, 
are you not? 

Mr. Ripley. Yes, sir. 

Mr. Sperry". That is all I wanted. Suppose, as a matter of fact, the 
banks should operate under it and put out circulation; what would be 
the effect of that circulation on the legal-tender paper money of the 
Government? Would it tend to return that legal- tender money to the 
Treasury for redemption ? 

Mr. Ripley. Let me get that clear. If the banks issue notes as pro- 
posed, obviously a considerable part — how many we can not say until 

NAT CUR 19 



290 NATIONAL CURRENCY AND BANKING SYSTEM. 

the result — a considerable part of the greenbacks will be locked up in 
the Treasury. 

Mr. Sperry. That is assumed by the Secretary. 

Mr. Ripley. Your question has to do with the remainder? 

Mr. Sperry. Certainly. 

Mr. Ripley. I have no question that when there is a call for gold 
shipment, legal tenders will be likely to be presented iu order to secure 
gold, so long as the Government agrees, and carries out its agreement, 
to pay gold on demand. 

Mr. Sperry. You do not get the idea in my question. It lias been 
suggested by some banking men that banks would make an effort to 
circulate their own bills as distinguished from other money. Now, you 
think that is a fact! 

Mr. Ripley\ I think that is a fact, sir. 

Mr. Sperry. Then, if that is a fact, would not the effect of that be 
to cause the greenbacks to flow back to the Treasury for redemption? 

Mr. Ripley. I think not; I think the banks would hold greenbacks, 
inasmuch as they are lawful money, for the redemption of 'their own 
notes. They would be a part of their reserve. 

Mr. Sperry". You think they would rather hold them than to hold 
gold coin ? 

Mr. Ripley. I think they would rather hold paper than gold, so 
long as there is no question about payment. This is what I mean by 
it. Four years ago, in the settlement of clearing-house balances, gold 
certificates were used very largely. At present, I think I am not 
wrong in sayiug that in the settlement of clearing-house balances, both 
in Boston and New York, very little or any gold is used at all. The 
legal tenders are used instead. In other words, the banks have had a 
tendency to cling to their gold. But if, under the conditions you pro- 
pose, there were that same preference, existing banks would undoubt- 
edly prefer to hold gold rather than greenbacks. Otherwise I can see 
no reason for it. 

Mr. Sperry. Would not that drive gold out of the Treasury at once? 

Mr. Ripley^. I should not say it would have that tendency, to with- 
draw gold at once. 

Mr. Warner. If the number of greenbacks outstanding were 
decreased as you propose, would it not make the banks have a greater 
tendency not to present greenbacks than they have now? 

Mr. Ripley. I am inclined to think so. As I say, the greenbacks 
are lawful money for the purpose of redemption, and on that ground it 
seems to me they would be gathered in the banks. In other words, 
the banks would hold reserves of greenbacks and gold. If the ques- 
tion of export comes up, in case their stock of gold is large and in case 
they have no question but that they can get their legal tenders paid 
in gold, they would give up the gold. If, on the contrary, they have 
a shadow of doubt about that, the tendency would be to give up the 
legal tenders. 

Mr. Russell. Kindly give your opinion on this : Would the enact- 
ment of Secretary Carlisle's bill, with its provisions as now drafted, 
be more favorable to State-bank issue than to national-bank currency? 

Mr. Ripley. In my opinion, as I tried to set it forth, as I read the 
provisions of the bill affecting State-bank notes, the difference between 
them and national-bank notes very obviously would be so marked that 
the State-bank notes would enjoy very little or any circulation under it. 

Mr. Johnson, of Ohio. Because of the character of the notes them- 
selves? 



NATIONAL CURRENCY AND BANKING SYSTEM. 291 

Mr. Russell. You misunderstand my question. 

Mr. Johnson, of Ohio. I beg your pardon. 

Mr. Russell. Take the provisions of the Carlisle bill now under 
consideration by us, without any change of its provisions. I am not 
speaking about the character of the bills issued under the proposed 
law. But are not those provisions of the Carlisle bill more favorable 
to the issue of State-bank currency than they are to the issue of national- 
bank currency ! 

Mr. Walker. On the face of them. 

Mr. Russell. In other words, are there not fewer restrictions in this 
measure of Secretary Carlisle's affecting State-bank currency than 
there are for national-bank currency! 

Mr. Ripley. Allow me to answer in this way: In case of the desire 
of banks to issue notes, and the willingness of the public to take the 
notes, I think under this bill the banks themselves would be tempted to 
try and put their notes out. But the main contention I make is that 
under the terms of the bill it seems to me that the public would at 
once discriminate between the two, and discriminate in favor of the 
national-bank notes. I beg to be allowed to repeat that. 

Mr. Russell. Then, in other words, a State currency under this bill 
would not circulate? 

Mr. Ripley. I doubt it very much. I beg to repeat that point. The 
national-bank notes issued under this bill are secured apart from the 
30 per cent fund (in which case they are on a level with the State-bank 
notes), apart from the first lien on the assets (in which they are also on 
a level with the State banks), and apart from the double liability of the 
stockholders (in which also they are on a level with the State-bank 
notes). The national-bank notes participate in the security afforded 
by the 5 per cent fund which is levied on all the banks. There is no 
such requirement affecting State-bank notes. 

Mr. Johnson, of Ohio. Each national bank has to take the notes of 
other national banks? 

Mr. Ripley. That is the present law. 

Mr. Johnson, of Ohio. Internal-revenue taxes are paid in them? 

Mr. Ripley. I do not know what the present practice is in that 
respect. 

Mr. Russell. That is, the requirements of the national-bank notes, 
under Secretary Carlisle's bill, are more exacting than they are for the 
issuance of State-bank currency. 

Mr. Ripley. I do not quite apprehend. 

Mr. Johnson, of Indiana. The question is easy if you think a 
moment. 

The Chairman. The answer is, that it does exact one more condition ; 
that is all. 

Mr. Russell. Let the gentleman answer for himself. 

Mr. Johnson, of Indiana. The question is, which is the easiest bank- 
ing law under which to issue notes'? 

Mr. Ripley. I think it is easier for the national banks. If, by issuing 
notes, you mean by putting them out, I think the national bank gets 
them out. 

Mr. Johnson, of Ohio. People take them more quickly. 

STATEMENT OF C. C. JACKSON. 

The Chairman. Mr. C. C. Jackson, of Boston, is present and will 
address the committee. 



292 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Jackson. Mr. Chairman and gentlemen of the committee, I feel 
very much gratified to be allowed to come before you to say a word 
upon this matter. 1 am not a banker. I am a stockbroker. It would 
be absurd for me to attempt to say anything about the details of cur- 
rency after the excellent expert testimony you have had on that sub- 
ject. But I do want to urge that you will put one particular clause in 
whatever bill you report for the reform of the currency, namely: One 
directing the Secretary of the Treasury to begin in January, 1895, to 
cancel each month $4,000,000 United States Government legal-tender 
notes now used as currency, either greenbacks or Treasury notes, as he 
finds most convenient; to use the sinking fund for this purpose so far as 
it will serve; and to sell bonds to raise the required cash, if necessary, 
and to continue this process till the legal-tender notes are all canceled. 

It would be absurd for me to give suggestions about the details of a 
currency system when you have experts like Mr. Hepburn on the sub- 
ject before you. But the effect on the investing public produced by 
anxiety about Government notes I have had a good chance to observe 
and good reason to carefully study. JQUflH 

It is now generally admitted that the use of these Government notes 
is harmful, and the favorite plan seems to be to get some of them out 
of the market into the hands of the Government, and to allow the 
Secretary, if he pleases, to buy up and cancel others of them when he 
gets surplus revenue. It does not seem to me to be wise to confine 
legislative action to these steps. If the notes are kept alive and only 
held by the Government, instead of by the public, the world will not 
feel sure that they may not any day be ordered into the market again 
by Congress. And as for the cancellation by the Secretary of the 
Treasury with surplus revenue, who knows when we shall begin to 
have surplus revenue, or how long we shall continue to have it after we 
have begun ; and who knows what may be the desires as to cancella- 
tion of the gentlemen who will hereafter be Secretaries of the Treas- 
ury"? I think the case demands much more certain and immediate 
treatment. We want to immediately convince the financial world that 
we see clearty the harm which the use of Government notes as currency 
is doing us, and that we are going to cancel them just as fast as pru- 
dence may allow so great a change to be made. 

For more than two years, now, every day when we have come to break- 
fast we have all looked to see how the gold reserve of the Treasury 
stood. And not only we, but all Europeans who are seriously interested 
in financial questions have for that two years watched with anxiety lest 
our Government should fail to keep its promises and should break clown 
in its effort to redeem its notes in gold. The strain on the nerves and 
the distraction from business produced by this anxiety has been very 
serious. But I think the disgrace to our country is still more important. 
Why should we make it possible for anybody to doubt whether we will 
keep our promises as to a duty so light and so entirely within our power 
to certainly perform? The constant prompt redemption of $500,000,000 
of paper by a great nation of 70,000,000 of people left uncertain ! Why, 
it is only $7 x>er head for the total amount. We had far better tax 
ourselves this $7 per head at once and pay the whole amount off than 
suffer this disgrace and anxiety. 

Think of the humiliation involved in the last sale of bonds. The 
Treasury evidently had to make a special bargain with a strong syndi- 
cate, because it feared that no other buyers of the bonds would furnish 
it with the needed gold. I think the Treasury officials were right iu 
making this bargain under the circumstances ; but how clearly it proved 



NATIONAL CURRENCY AND BANKING SYSTEM. 293 

the weakness of our system. Our system depends for its success on 
favorable conditions of business and on the favor of strong money syn- 
dicates. The Treasury is debarred from getting the money it wants — 
that is, gold — by popular subscription, because it is pledged to give gold 
always at its own counter for its own paper. Who knows how this 
money syndicate will be disposed to act as to gold when the Treasury 
comes begging again ? It is really an instance of poetic justice. It is 
dishonorable in our Government to force creditors by legal-tender laws 
uow, in time of peace, when there is no emergency, to force creditors 
now to accept in satisfaction of debts paper which we know is not quite 
so good as gold, because at the best these people on whom it has been 
forced can not use it to pay any debts they may have abroad. And the 
obvious distrust of this paper by our importers and banks has lately 
made its inferiority and the injustice of this Government, action still 
greater. It is poetic justice, therefore, that our Government should 
find its unjust laws recoiling on itself, and forcing it to beg from some 
people and to bully others in oruer to get its needed supply of the 
standard money of the civilized world. 

And we hesitate to grapple boldly with this evil and to promptly 
root it out. Why? Because we should be substituting an interest- 
bearing for a non interest-bearing security. We know that we ought 
to gradually cancel $500,000,000 Government demand notes. If 
bonds were sold to raise the $500,000,000 needed for this purpose at a 
rate of interest a little under 3 per cent, and with the advantage of 
some saving in expenses of redemption, etc., the added annual cost to 
the Government might be $14,000,000. This is the whole story, and 
the work would then be complete. 

We should no longer be ridiculous in the eyes of the world; we 
should not again have to humiliate ourselves before money syndicates; 
we should no longer cause our own and foreign capitalists to hesitate 
about investing here; aid we should make it much easier to get the 
consent of conservative people, who wisely fear inflation, to the adop- 
tion of more liberal laws for the issue of currency by banks. 

How can we strike a balance between the gain and loss here? How 
can we compare an outgo of $14,000,000 per year with the great 
annoyance caused by lack of currency in the sparsely settled districts 
and the humiliation and dishonor of our Government, and all the 
misery and anxiety which it causes watchful citizens? We cannot 
make this comparison, because, if for no other reason, the importance 
of dishonor can not be expressed in money. 

But there is one comparison which we can make, and it is a sug- 
gestive one. The best statisticians consider, I believe, that the average 
income of each of our inhabitants is somewhere about $200 per year. 
Perhaps it is not quite so much as this, but this is near enough to the 
fact. Suppose that the decrease in incomes caused by the timiduVv in 
expenditure and hesitation in business, arising from fear about the gold 
reserve, has amounted to 5 per cent during the last two years. This 
would be $10 per head each year, or $700,000,000 in the whole country 
each year, or $1,4< '0,000,000 in the two years. Now, of this the 
$14,000,000 added annual interest, which is so feared, is only 1 per 
cent. It is only one-tenth of 1 per cent of the annual income of our 
citizens. It is, of course, very easy to make startling figures by adding 
a few zeros, and so to prove almost anything. But am I at all at fault 
in this computation ? I beg you to go over it carefully yourselves. 
The statement that $14,000,000,000 is the aggregate amount of the 
annual incomes of all the people of the country often puzzles men, 



2^4 NATIONAL CURRENCY AND BANKING SYSTEM. 

because they know that the total annual products of the country do not 
amount to nearly as much as this. A very large part of the incomes of 
our people, however, are derived from services rendered to each other, 
and the incomes are none the less fairly earned and none the less 
important to the earners merely because they do not represent the 
production of solid things, like potatoes and iron. 

Take, for instance, the fees and salaries of lawyers, ministers, painters, 
and singers. We kuow that many of such people have had their 
incomes sadly curtailed during these two years. And among those of 
not so great capacity, who act as brokers, or teachers in the schools, 
or accountants, etc., how many instances of great suffering we have 
heard of lately! Sometimes the depression does tell strongly even on 
the production of solid things — as when, for a most striking case, the 
rate of production of iron fell for some months in 1893 to 40 per cent of 
what it had been before. 

Besides the hesitation and timidity in this country we must take 
into the account the withdrawal of capital by foreigners, which 
caused an excess of exports over imports of $279,000,000 in the year 
August 1, 1893, to August 1, 1894, and say one-half that amount in the 
current year. 

It seems to me that to attribute a decrease of 5 per cent in incomes 
during the last two years, a loss of $1,400,000,000, to anxiety at home 
and abroad about the gold reserve is thoroughly reasonable. And we 
must remember that this anxiety and loss is by no means ended yet, 
and also that it began to some extent back in 1885, and has been more 
or less active almost ever since then. 

And I have taken no account here of the frightful wreck of health 
and life and property in the panic of 1893. We all know instances of 
sad loss of health, and most of us, probably, of one or more cases of 
death among our own friends, which were obviously caused by that 
panic. 

Now, it would be absurd to attribute the panic wholly to the vicious 
character of our currency. Panics pretty regularly recur about ten 
years apart. But unquestionably our bad currency was one of several 
causes of this panic, and it increased the sharpness and intensity 
of it enormously. It is only necessary to compare our experience in 
this panic with our experience in former ones, and with the experience 
of England during the last twenty years, in order to feel sure that our 
vicious currency doubled our sufferings. 

And we consider an annual interest charge of $14,000,000 as more 
important than the lowering of the honor of our country plus a loss of 
$700,000,000 in a single year, with nobody knows how many more losses 
to follow. 

We brokers have the same kind of question constantly facing us that 
the Government has. W r e, of course, can not borrow on call without 
interest, as the Government can, but we can almost always borrow 
much cheaper on call than on time. We do not dare, however, to have 
more than a moderate share of our loans on call, although we always 
have good convertible quick assets backing up every loan. The 
Government has almost no quick assets beyond its working balance, 
and has $500,000,000 out on call, but it is not willing to fund this 
call loan, because it would force the inhabitants of the country to 
pay an additional 20 cents apiece each year, even though this funding 
would save it from humiliation, and would save these inhabitants from 
losses of hundreds of millions each year. 

Was there ever such indifference to reputation or such bad business 



NATIONAL CURRENCY AND BANKING SYSTEM. 295 

judgment? Putting- aside all consideration of honor, the fear of a 
charge of $14,000,000 per year, at the most, distributed among 
70,000,000 of people, prevents our putting our finances in proper order, 
and prevents our sharing as we might in the revival of enterprise 
which is now springing up in Europe. 

On this latter point let me read you a paragraph from the financial 
column of the New York Evening Post of last Wednesday: 

It is not improbable that the railway shares may later on reflect further the expec- 
tations roused by the interstate amendment, especially if the bill goes promptly 
through the Senate. But the hesitation of the market to-day, taken in connection 
with its action siuce October, is evidence enough that the trouble now existing lies 
much deeper. Europe's view of our currency situation, reflected in the foreign 
sales, even after the election and the bond issue, and expressed with little reserva- 
tion in the best-informed foreign newspapers, is shared in no small degree by home- 
investing interests. It does not excite alarm, but it prompts the utmost caution and 
checks all efforts to anticipate returning prosperity. The gold movement's continu- 
ance will depend largely upon how far the conduct of our legislators justifies or 
belies these honest misgivings. But for this doubt over the possibility of currenGy- 
reform legislation, a foreign buying movement in American securities would now be 
almost certain. The spread of the investment movement in London is shown by the 
fact that subscriptions to new security issues in that city have risen from a weekly 
average of $3,500,000 in September and $6,500,000 in October to $15,000,000 since 
November's opening. But little or nothing of this new capital comes to tbe United 
States. Of the fifty-million Federal loan of November, hardly more than a million 
passed into foreign keeping. 

The world is watching to see whether Congress will allow our Treas- 
ury to dritt .along in its present helpless condition — appealing more and 
more frequently and weakly to the money powers — or whether Con- 
gress will do boldly, promptly, what it has evidently decided to do 
eventually, and root out the evil immediately. The cancellation can 
be as slow as we please. What is needed to restore our good standing 
and peace is the adoption of apian which will surely, without fail, effect 
this cancellation within a definite period of time. Capital is much 
wanted in the newer parts of the country andean much more easily be 
got if the greenbacks and Treasury notes are once canceled. 

This seems to me to be of vastly more importance than is generally 
appreciated. It is about two years and a half since* people began to 
be anxious about the Treasury position. I suppose we people in the 
street — as we say — feel it more than most people. But certainly it has 
been our experience that it has been the cause of great anxiety and 
worry to every business man of the country. The $14,000,000 charged 
is the largest element at the very worst, and it would not be as much 
as that. 

The Carlisle bill or the Eckles bill, taken alone without anything 
further, will not, so far as I can judge, give confidence either to home 
investors or to European investors. 

Mr. Johnson, of Ohio. Your reason for wanting to retire greenbacks 
is to avoid the necessity of carrying a gold reserved 

Mr. Jackson. In a general way, but I want to say another thing, if 
you go into details. 1 think that very soon after a great many green- 
backs were canceled we should be compelled to make the silver dollars 
convertible into gold on demand. I do not think it would increase the 
strain on the Treasury to-day. 

Mr. Johnson, of Ohio. You want to retire the greenbacks so that 
there will be no call loans for gold % 

Mr. Jackson. Exactly. 

Mr. Johnson, of Ohio. And then you want to propose a step fur- 
ther — that is, to make every silver dollar or silver certificate redeem- 
able by the Government in gold. 



296 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Jackson. Every one of them. 

Mr. Johnson, of Ohio. So you would still have to carry gold 

Mr. Jackson. Yes, sir. 

Mr. Johnson, of Ohio. Until what poiut should be reached? 

Mr. Jackson. I do not know exactly how I would treat the silver 
dollars eventually; I have not thought of that. The Treasury would 
need a much smaller reserve in the future if the greenbacks or Treas- 
ury notes were out of the way. In fact, I think the need would be 
almost next to nothing. 

Mr. Johnson, of Ohio. You would have to have a small reserve for 
that. 

Mr. Jackson. Undoubtedly. 

Mr. Johnson, of Ohio. You would reissue the silver dollars after 
they have gone into the Treasury, would you ? 

Mr. Jackson. It is enough to begin. I should like to retire the 
silver dollars by and by, but we have got to protect the Treasury notes 
and greenbacks first. 

Mr. Johnson, of Ohio. The amount of greenbacks and Treasury 
notes is about $500,000,000? 

Mr. Jackson. I think so. 

Mr. Johnson, of Ohio. And the amount of silver and silver cer- 
tificates? 

Mr. Jackson. I think the amount of silver certificates is about 
$340,000,000 additional, and about $56,000,000 of silver dollars. 

Mr. Johnson, of Ohio. Ultimately you want to retire all those with 
gold? 

Mr. Jackson. That is what I should prefer. 

Mr. Johnson, of Ohio. Is that the feeling of the "street," as you 
express it? 

Mr. Jackson. I think without doubt that is the feeling of men who 
have really given thought to it. Of course, I know men do not really 
think much about it. But there is no question about it at all, and it is 
perfectly impossible to make many people believe that we are not going 
upon a silver basis, and that soon. I have talked with many who 
thought so. I have talked with one gentleman whose father is in the 
Bank of England, in London, and he says: "You are going to silver in 
three years, as a matter of course." They take it as a matter of course. 
We have got to change that if we want to get on a proper footing with 
the rest of the nations of the world. 

Mr. Johnson, of Ohio. After destroying the belief of the people in 
further silver, as you think ought to be done, you think the next step 
would be to retire greenbacks and finally to retire all the silver in 
circulation ? 

Mr. Jackson. That is it. 

Mr. Johnson, of Ohio. And that is the feeling among the people of 
New York City ? 

Mr. Jackson. I live in Boston, but I should say it is, decidedly. 

Mr. Sperry. Would you circulate any silver at all? 

Mr. Jackson. As subsidiary coinage, of course: halves and quarters. 
I do not think a little silver could do any great harm. But this matter 
of passing silver as a legal tender when it is only intrinsically worth 
50 cents on the dollar is, of course, vitally wrong and must do harm. 

Mr. Sperry. Do you think we shall ever be able to redeem our 
obligations in gold? 

Mr. Jackson. I do not think there is the slightest question of it. I 
think this notion about the scarcity of gold is an entire mistake. 



NATIONAL CURRENCY AND BANKING SYSTEM. 297 

Mr. Sperry. Our circulation is how much larger than our gold ? 

Mr. Jackson. Five hundred million dollars in greenbacks and Treas- 
ury notes together, as near as I can estimate; I would not pretend to 
be accurate; $340,000,000 of silver certificates and $56,000,000 of 
silver. 

Mr. Sperry. How long, in your judgment, would it require the United 
States to redeem its obligations in gold? 

Mr. Jackson. I think to cancel greenbacks at the rate of about 
$50,000,000 a year would not only be perfectly easy, but would be 
moderate enough. It is not a question of redeeming and canceling in 
gold particularly. All the Secretary has to do is to sell $500,000,000 
in bonds, and destroy the greenbacks received in payment. 

Mr. Sperry. What would you issue, if anything, in place of the 
Treasury notes taken in and destroyed? 

Mr. Jackson. When you say "you" do you mean the Government, or 
do ycu mean the banks? 

Mr. Sperry. The Government. When the Government takes in 
the United States Treasury notes, greenbacks, and notes issued under 
the act of 1890, and destroys them, what would you issue in place of 
them, if anything? 

Mr. Jackson. I should not properly call it issuing at all. But what 
I should do would be to coin the gold brought to the mint into stand- 
ard dollars and eagles and subsidiary coinage. 

Mr. Sperry. Would you substitute for the destroyed currency any 
other paper currency? 

Mr. Jackson. I would let the banks take care of themselves, just as 
I would let an apothecary take care of medicine, and let shoemakers 
take care of shoes. It is a great deal worse for the Government to 
enter into the business of banking than it is for an apothecary ; there is 
much greater difference in the avocation. 

Mr. Walker. Do you understand that there are $346,000,000 of green- 
backs? 

Mr. Jackson. I think so. I may not be accurate, but I think so. 

Mr. Walker. Suppose we had a banking system which required the 
banks to keep their bank reserve, half in gold and you might keep the 
other half in silver. Assume $400,000,000 altogether, then there would 
be $200,000,000 of each. Suppose $246,000,000 of the greenbacks out 
were destroyed after being purchased by bonds or by the banks assum- 
ing the greenbacks for their own notes; and then suppose the Treasury 
redeemed the remaining $100,000,000 out for the other $100,000,000. 
That would clean up the greenbacks ? 

Mr. Jackson. Yes; that would clean them up. They would still be 
in existence. 

Mr. Walker. No. 

Mr. Jackson. I thought you said they would be held against the 
bank notes. 

Mr. Walker. No, sir. You will please mark my question as I put it. 

Mr. Jackson. I misunderstood you. 

Mr. Walker. If the Government took up $246,000,000 of greenbacks 
and destroyed them, and the banks put their own notes in place of 
them, provided the Government would agree when they went out of 
existence to pay them with good money, that being the condition on 
which they took them; then the Treasury had the $100,000,000 to pay 
the other $100,000,000 of greenbacks. That would destroy the whole, 
so far as the Treasury is concerned, in current redemption? 

Mr. Jackson. Yes. 



298 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. That being the case, Avould there then be the slightest 
idea in Europe, in this country, or anywhere else, that there is the least 
danger of our coming to a silver basis if the Government would say, 
a We will pay no more gold; you can go to the banks for your gold?" - 

Mr. Jackson. I understand that that is your bill 

Mr. Walker. I did not ask that. 

Mr. Jackson. No, sir ; I say I think that is a good deal better. I 
think your notion of paying greenbacks is vastly better than Eckels's 
or Carlisle's plan of holding them. But what I want to say is this: I 
do not think that would establish confidence so much as going ahead 
on a definite plan to burn up all that is taken in. That is what would 
establish confidence. Sometime ago, after the war, at any rate, we 
had a certain number of greenbacks out. Then we got some more out, 
and got some back, and so on. 

Mr. Walker. You are not answering the question. 

Mr. Jackson. Yes, I am ; I want to show you why it would not estab- 
lish confidence, as you think it would — at least in my opinion, if you 
want my opinion. My opinion is that it would not, and for this reason, 
if you please, sir. 

Several members of the committee. Go ahead. 

Mr. Jackson. I say that confidence by the action of the Government 
has been seriously impaired. When we had $346,000,000 of green- 
backs everybody said that would never increase. But silver certificates 
were issued which were apparently receivable for dues, and were held 
by the banks as reserves (very nearly as bad as if they were absolutely 
redeemable in gold) ; then, in addition, there were the silver certificates 
amounting to nearly $350,000,000, and $150,000,000 more of Treasury 
notes, making altogether about $840,000,000 of this wretched stuff, 
when we should have had but $340,000,000. I think that Mr. Walker's 
plan, along with the plan of Mr. Carlisle or Mr. Eckels, is defective in 
that way. It will not restore confidence. We have got to turn a sharp 
angle. We can not slide along easily. We have got to turn sharply 
around and adopt a plan which will cancel all these notes and show a 
perfect change of heart, I think. I have tried to answer you. 

Mr. Walker. I believe you have said that about three times; I hope 
you will not say it again. 

Mr. Jackson. I do not know that that is necessary. Still, if that is 
your method in here, of course I shall respect it. 

The Chairman. I believe the witness is entirely respectful. 

Mr. Walker. I suppose members of the committee have some rights. 

Mr. Jackson. And I suppose a witness has. I agree with you very 
decidedly financially, but I do not wish 

Mr. Walker. I was asking you a question, and I want to say here 
that since Mr. Carlisle has brought in his bill it has seemed out of 
order to speak of any other bill, and I believe you are the first gentle- 
man who has spoken of any other bill, 

Mr. Jackson. I was not aware of it. I am very sorry. 

Mr. Walker. You are the first man who has introduced my name. 

Mr. Jackson. I apologize most humbly. I was not aware that it 
was improper. 

Mr. Walker. I only say that I was asking questions for information, 
and you have chosen to answer them as you have. I think I will ask 
no more. 

Mr. Brosils. Suppose all the greenbacks and Treasury notes are 
out of the way, and that all of our paper money consists of notes 
under the banking system. Would you consider it practicable to have 



NATIONAL CURRENCY AND BANKING SYSTEM. 299 s 

those notes all redeemed in gold at the Treasury of the United States, 
instead of having them redeemed over the counters of the banks? In 
otner words, having a single place for one redemption instead of hav- 
ing three or four thousand, as the case may be, according to the num- 
ber of banks. 

Mr. Jackson. That is a thing I have not thought of. I should think 
it would be extremely inconvenient for many people. The notes are 
now redeemable at the banks and at the 'Treasury, and sometimes at 
other places, and 1 think that has worked very well. 

Mr. Brosius. Some publicists advocate having a single place to 
keep gold to be used for purposes of redemption, on the ground that it 
is very much more economical to do so; that it requires more gold to be 
held in reserve if divided up into 4,000 parcels than to keep it all 
together. 

Mr. Jackson. I do not believe that is the case. That same notion 
was held by these large industrial concerns. They thought because 
they were big they could have a large floating indebtedness, but it 
turned out that large concerns can not have nearly so large indebted- 
ness as a smaller concern. In the long run it is my impression that the 
Government would have the same experience. Of course I do not know. 

Mr. Haugen. Do you think this large gold reserve would always be 
the object of attack? 

Mr. Jackson. I should not like that method. 

The Chairman. If there are no 'other questions to be asked this 
gentleman, the Chair will state that to-morrow Mr. St. John, of New 
York, and Mr. Williams, the president of the Chemical Bank, of New 
York City, will be here, and the committee will meet at 10 o'clock 
unless there be some other order. 

Mr. Walkek. I move that we go into executive session for a few 
minutes. 

The motion to go into executive session was agreed to at 4 o'clock 
and 20 minutes p. m. After a short executive session the committee 
adjourned, to meet at 10 o'clock to-morrow morning. 



Committee on Banking and Currency, 

Saturday, December 15, 1894. 

The Committee met at 10 a. m. 

There were present Mr. Springer (chairman); Mr. Sperry; Mr. Cox; 
Mr. Cobb, of Missouri; Mr. Culberson; Mr. Ellis; Mr. Cobb, of Ala- 
bama; Mr. Warner; Mr. Johnson, of Ohio; Mr. Black; Mr. Hall; Mr. 
Walker; Mr. Brosius; Mr. Henderson; Mr. Kussell; Mr. Haugen; and 
Mr. Johnson, of Indiana. 

The Chairman. The committee will please come to order. The chair 
has received the following letter, which he desires to submit to the 
committee. It is from York, Nebr. 

Mr. Johnson, of Indiana. What is the name? 

The Chairman. George W. Post, president of the York National 
Bank. 

The chairman proceeded to read the letter. 

Mr. Johnson, of Indiana. Does the chair desire that to go in the 
record ? 

The Chairman. Yes. 



300 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Indiana. Has the chair received letters from people 
throughout the country in regard to the bill, letters of a general charac- 
ter addressed to the chair? 

The Chairman. Some of that character, yes. 

Mr. Johnson, of Indiana. By what method does the chair determine 
which to present and have incorporated in the record and which to 
keep back J ? 

The Chairman. The chair has heretofore presented letters only 
addressed to the committee from those who have been invited to appear 
before the committee, and the reason this letter was presented here 
was, it came from a region of country from which we had not been able 
to get persons. 

Mr. Johnson, of Indiana. It seems to me if we are going to put into 
the record individual letters from those people who favor this bill, it 
would be a pretty good idea to put in letters generally on this subject, 
so we will have a general consensus of the opinion of the country. 

The Chairman. If there is any objection, I will withdraw the letter. 

Mr. Johnson, of Indiana. I would like to ask the chairman a ques- 
tion first. I would like to ask the chairman if this is the only letter of 
that kind indorsing the Carlisle plan. 

The Chairman. This is the only one from a national banker. 

Mr. Johnson. I would suggest that they all be put in or that this 
one be withdrawn. 

The Chairman. The chair will withdraw the letter. 

Mr. Hall. I got a letter from a Populist this morning in which he 
denounced the bill. 

The Chairman. The chair desires to state that he has received a 
letter from Mr. John W. Stewart, of New York, who regrets that he can 
not be present, he having been invited to be present. The gentlemen 
present to-day are Mr. St. John, of the Mercantile National Bank, and 
Mr. Williams, of the Chemical National Bank of New York. Mr, Wil- 
liams will first address the committee. 



STATEMENT OF MR. GEORGE G. WILLIAMS, PRESIDENT CHEMICAL 
NATIONAL BANK, NEW YORK. 

Mr. Williams addressed the committee, as follows : 

Mr. Chairman and gentlemen of the committee: Invited to present 
my views before this committee, they shall be as brief as the subjects 
in hand will permit. 

The situation is one requiring but firmness and common sense. The 
first problem in our clumsy and conglomerated financial system is the 
disposition to be made of the legal-tender notes. Coming into being 
during the war, 'they performed their functions admirably as a war 
measure, but we now wake up and find that the war is over and that 
the notes are in the way and are not wanted. No financial scheme can 
be permanently successful without providing for the elimination of 
these notes from our fiscal system. Provision should be made at once 
for the funding of a part of them, say $250,000,000, in amounts of per- 
haps $50,000,000 at a time, at the discretion of the Secretary of the 
Treasury. 

United States bonds bearing a rate of interest not over 3 per cent — 
and my idea would be that a 3 per cent bond would be the most advis- 
able to issue, as it would never go below par — and that these bonds 
should be received as security for circulating notes of national banks on 



NATIONAL CURRENCY AND BANKING SYSTEM. 301 

a basis of par for the bouds, tlie Government having a first lien also on 
the assets of the banks as additional security. No further margin need 
be required, as the security would be ample. These notes should be 
redeemable in the city of New York, and when issued in sufficient vol- 
ume and being- readily convertible would furnish adequate elasticity to 
the currency, which is so much desired, but in no event should be made 
subordinate to that of security. 

The tax on the circulation of national banks should at once be removed, 
and it will be readily seen that with a 3 per cent bond at par and no 
tax to be paid on the circulation there will be some inducement for 
national banks as a matter of profit to take out circulating notes. 

I might say one word in regard to the Baltimore plan, and it is this: 
That the security would be ample for notes issued by banks conducted 
in as conservative a manner as are those of the banks of that city, but 
it is to be remembered that this system would apply to nearly 4,000 
banks, many of them very small, and located in all parts of the coun- 
try, and that it is presumable that very many mushroom banks would 
be started, merely with a view of issuing circulating notes; and it 
seems hardly possible that loss can be avoided to the whole system, 
arising from the failure of such banks. As to the proposed issue of 
notes seemed by a sinking fund and a tax to be levied on solvent 
banks, to secure the circulation of any number of mushroom banks 
which would undoubtedly spring up, it will be readily seen that con- 
servative and well-managed institutions would absolutely refuse to join 
hands in making good losses sure to arise from failed banks. 

Providing in this manner for the funding of the legal-tender notes, 
and for a new issue of national-bank notes, there still remains to be 
dealt with the question of the silver certificates and of the Sherman 
notes. With reference to the latter, the reserve of $100,000,000 in the 
Treasury would seem to be ample for their protection; and as for the 
silver certificates, I would say that it would be wise to pass an act of 
Congress allowing them to be redeemed in silver bullion at its market 
value, at the discretion of the Secretary of the Treasury; and I do not 
know but that it might be well enough to include in such an act the 
Sherman notes also. 

With these few changes in the law, our financial system would be 
upon a sound basis, without which it is impossible to do business with 
confidence, and the efficiency of our banking system, the most perfect 
which has ever been devised, would be increased and strengthened. 

Mr. Warner. Do you think that the plan you £>ropose would give 
sufficient elasticity to the currency? 

Mr. Williams. I think that the national -bank notes would take the 
place of the legal-tender notes, and when they are not wanted, as at 
present, they would be redeemed. That would give sufficient elasticity 
to the currency. If $250,000,000 of legal-tender notes were withdrawn 
and an equal amount of national-bank notes substituted which would 
be readily redeemed, I think it would afford sufficient elasticity to the 
currency. The details of this can be worked out by the Treasury 
Department having on hand ready printed and ready to be issued at 
any moment a sufficient quantity of these notes miese:" T e, which would 
afford relief in case of emergency. 

Mr. Warner. To what elasticity do you especially refer; the elas- 
ticity which will keep the general volume of notes in accord with the 
general development of business, or the elasticity which will provide a 
large excess in one month, for example, over what might be necessary in 
the next month? 



302 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Williams. There are times when there is too much money, and 
times again when money is scarce. When money is a plethora in the 
market, as it is at present, and can not be used it will be taken in, and 
national-bank notes will remain locked up in the vaults of the national 
l)anks. When a demand comes they would go out by discounts. 

Mr. Warner. Your idea is this would provide elasticity to meet the 
varying demands of business week by week and month by month'? 

Mr. Williams. I do. 

Mr. Warner. And your term "elasticity" refers to that and not to 
a general expansion to meet all the developments of business, by years, 
for example ? 

Mr. Williams. I think that will provide for itself. 

Mr. Warner. I understand you. You speak about redemption 
facilities. Do you consider that would have enough of elasticity unless 
we had better redemption facilities than Ave have now ? 

Mr. Williams. The better the redemption facilities the more elastic 
is the currency. 

Mr. Warner. Do you think, for example, that provision of our 
present law which makes the national-bank notes a practical legal 
tender between banks were repealed, our currency would be more 
elastic f 

Mr. Williams. I do not know that I get your idea. 
. Mr. Warner. As I understand, our present national-bank law prac- 
tically makes the notes of national banks legal tenders in transactions 
between banks'? 

Mr. Williams. Yes; among themselves. 

Mr. Warner. And that takes away what might, under some circum- 
stances, be an inducement for the banks to send each other's notes 
promptly in for redemption, does it not? 

Mr. Williams. We never have found in our experience that pro- 
vision was objectionable. 

Mr. Warner. You think it has little or no effect? 

Mr. Williams. It has not with us. These notes are redeemable 
readily at a central point, and when they are not wanted they are taken 
in, and when they are wanted they quickly go out. 

Mr. Warner. So that in regard to that special feature you suggest 
no change? 

Mr. Williams. I suggest no change. 

Mr. Warner. But, generally speaking, additional redemption facili- 
ties would assist elasticity? 

Mr. Williams. Bed em pt ion in the city of New York would be more 
desirable than in Washington, simply because of the cost of transport- 
ing notes by express from New York and different cities to Washington. 

Mr. Warner. The greater the redemption facilities the greater the 
elasticity ? 

Mr. Williams. Yes. 

Mr. Warner. Now, I am about to ask you a few questions ; but it is 
not my intention to go into the business of your bank to any extent 
which is not now published, so if I should inadvertently ask any ques- 
tion which you think goes beyond that, I trust you will stop me. I 
want to show the position of your bank and the conservatism of that 
position. What is the capital of your bank? 

Mr. Williams. Three hundred thousaud dollars. 

Mr. Warner. What is the present quotation of its stock? 

Mr. Williams. About forty-three hundred. 



NATIONAL CURRENCY AND BANKING SYSTEM. 303 

Mr. Warner. So that- the capital of your bank now represents how 
many millions of dollars! 

Mr. Williams. Our capital is $300,000 and our surplus is about 
$7,000,000. 

Mr. Warner. Your stock is worth about $4,300 a share? 

Mr. Williams. Yes, sir; it sells for that. It sells for more than it 
is worth. 

Mr. Warner. Forty-three times as much as its par. What is the 
amount of your bond deposit? 

Mr. Williams. The Chemical Bank has never taken out any circu- 
lation whatever. Our bond deposit is $50,000; but we have never cir- 
culated any notes. 

Mr. Warner. You think the Baltimore plan is not sufficiently con- 
servative"? 

Mr. Williams. My idea is — I have no confidence in the circulation. 
We tried it in the city of New York and State of New York, and it was 
not successful; and the Baltimore plan, as I have stated in the paper I 
have presented, would be all very well for the institutions where there 
has not a failure occurred in a bank for about sixty years, and where 
there is a correct public sentiment and nothing- mushroom would be 
tolerated; but it is to be presumed, if the bond security is taken away, 
that any number of banks will spring up in great numbers at every 
crossroad town in the West, and let the Comptroller of the Currency 
do the best he can, those banks will get ahead of him and there will 
be lots of little failures. 

Mr. Warner. You are referring now to the national banks? 

Mr. Williams. Yes, sir. 

Mr. Walker. I want to get at under what conditions he announces 
these mushroom banks would spring up? 

Mr. Williams. In the event of being allowed to issue circulating 
notes without every one of them being absolutely secured. 

Mr. Warner. That is under the Baltimore plan, for example. 

Mr. Williams. Now, I am talking about the Baltimore plan. 

Mr. Warner. What is the reason, may I ask, that you have not 
taken out circulation? 

Mr. Williams. We were under the State-bank system and issued 
circulating notes up to the breaking out of the war, and at that time we 
had about $300,000 of notes m circulation, and we redeemed every one 
of them in gold — and we did not care, as a matter of pride, and a little 
profit in it too ; but we did not care, as a matter of pride, to issue notes 
which*could not be redeemed in gold. 

Mr. Walker. As I understand, you see no necessity for funding but 
$250,000,000 of the $500,000,000 of Treasury notes, etc.? 

Mr. Williams. I meant to have added to my remarks the remaining 
legal tenders could be provided for in due time bj^ the surplus revenues. 
I would like to add that. I meant to have done so. I would like to 
add to this statement that the remainder of the legal tenders should be 
provided for in due time by the surplus revenues of the Government. 

Mr. Walker. How are they to be redeemed by the surplus revenues 
of the Government when the revenues are $6,000,000 or $8,000,000 a 
month less than the current expenses of the Government? 

Mr. Williams. Well, I take it for granted some time or other there 
will be money enough in the Treasury to redeem these legal-tender 
notes at par instead of buying 4 per cent bonds at 130, as the Govern- 
ment did at one time. 



304 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. Why should you assume that under present condi- 
tions? 

Mr. Williams. Only from the history of the past. 

Mr. Walker. Well, are we not under very different laws from what 
we had in the past, revenue laws of all kinds? 

Mr. Williams. That may all be, but the Government has reduced 
its debt from the time of the close of the war over $2,000,000,000, and 
I do not believe we are going to be a bankrupt treasury either. 

Mr. Walker. Do you think the experiment thus far under present 
revenue laws and conditions would justify our expecting the revenues 
will soon exceed the expenditures ? 

Mr. Williams. I think they Avill in the course of ten or fifteen years. 

Mr. Walker. Then in due time you mean ten or fifteen years'? 

Mr. Williams. Yes; I do not say in six months. 

Mr. Walker. Then for ten or fifteen years, according to your testi- 
mony 

Mr. Williams. Excuse me. I am jumping at that. 

Mr. Walker. I understand that. Then for ten or fifteen years there 
will be $250,000,000 

Mr. Williams. There will be $146,000,000. The legal tender notes 
now 

Mr. Walker. And the Treasury notes; do not the Treasury notes 
threaten the gold in the Treasury just to the same extent? 

Mr. Williams. I have provided for this. 

Mr. Walker. But I haven't asked my question yet. Do not they 
threaten the gold of the Treasury just as much as the greenbacks? 

Mr. Williams. Quite as much. 

Mr. Walker. What answer do you give to that? 

Mr. Williams. Fund the legal tenders and then the $100,000,000 of 
gold in the Treasury would be as a reserve for the Treasury notes. 

Mr. Walker. Well, but you are only funding $25 1,000,000, and you 
leave $100,000,000 of greenbacks and $150,000,000 - 

Mr. Williams. We leave those greenbacks; many are destroyed 
and a great many are out of sight and not in circulation, hoarded up, 
and they will hardly come to the surface — will hardly be felt. 

Mr. Walker. Do you think if $250,000,000 of the $500,000,000 of 
greenbacks and Treasury notes all equally payable in gold by the Treas- 
ury were taken out of circulation and bank notes substituted, that the 
other $250,000,000 would not be sought and used to take gold out of 
the Treasury by those who export gold? 

Mr. Williams. If it were needed; but I think the contraction 1 which 
would result to a moderate extent in funding $250,000,000 of legal 
tenders, and the redemption facilities of redeeming national-bank notes 
would inspire confidence in our currency and would relieve the Treasury 
there would not be so large an amount of gold wanted in export, and 
and foreign capital would be invested here. 

Mr. Walker: Will not you explain to the committee how substitut- 
ing $250,000,000 of national-bank currency for $250,000,000 of Treasury 
notes and greenbacks is going to relieve the Treasury from current 
redemption? The demand would then be just as big as it is to-day; 
how are you going to lessen the demand for gold with still $250,000,000 
notes to use to get it ? :;._, J 

Mr. Williams: The funding of $250,000,000 of legal tenders leaves 
the Treasury notes to be provided for by the $100,000,000 gold in the 
Treasury. 



NATIONAL CURRENCY AND BANKING SYSTEM. 305 

Mr. Walker: Is not that being taken out to-day, and has it not 
been for the last year or two ? 

Mr. Williams. I think the facilities for redeeming the national-bank 
notes and the elasticity which would result from the legal tenders being 
changed to national-bank notes, the legal tender being a fiat currency, 
whereas the national-bank notes can be redeemed, every one of them, 
would so tone up the money markets that the rates of interest would 
be improved and foreign capital would be utilized in the New York 
market. 

Mr. Walker. Will you give the committee, so far as you know, the 
class of persons and their business who have taken gold from the 
Treasury in the last twenty-four months. Are they not brokers 
and those who furnish the money for the importers to pay for their 
goods, etc.? 

Mr. Williams. There is always a large amount of foreign money 
used in New York if the rate of interest would justify its being left 
there. The Canadian banks always use a large amount in the New 
York markets, provided they can get interest enough to make it an 
object to be left there. Money can always be borrowed in New York 
of the foreign bankers, or rather, foreign money can always be bor- 
rowed in New York by those doing business abroad, collateral being 
left with the bankers here and the money being drawn for by the lend- 
ers on the other side. 

Mr. Walker. What you said is interesting, but I want, if you please, 
to fix your mind on my question. How will the minds or habits of 
persons who need gold, and they do need it constantly, be affected by 
the changing of $250,000,000 of greenbacks and Treasury notes into 
national- bank notes; how will it lessen the demand for gold? We do 
not know how it is going to do it. How is it going to relieve the Treas- 
ury from this constant drain of gold, in view of the fact they keep want- 
ing but a very few millions of dollars on a given day or week? 

Mr. Williams. The Secretary of the Treasury, in his report, if you 
remember, states that about $243,000,000 of the balance of trade has 
been in our favor, and yet we have exported gold. A large part of 
that $243,000,000 is foreign capital, which has been removed from this 
country, and most of it would have remained here provided it could 
have been utilized, but with the rate of interest at 1 per cent in New 
York for call money, and the rate of interest at 2 per cent in Paris and 
3 per cent in Berlin, money is sure to be taken from our market, and it 
has in that way. There has been also a fear of our currency. There 
has been a fear on the part of foreigners that we would go to a silver 
basis and they would be caught with their investments here, which 
would make them silver investments. For that reason timid people — 
and capital is always timid — have taken their money largely away 
from America. 

Mr. Walker. I am despairing of an answer? 

Mr. Williams. Give it to me again. 

Mr. Walker. I have given it five or six times, and as there are quite 
a number of gentlemen here who would like to ask questions I will 
drop that. Are you aware of a prejudice in the country against the 
use of United States bonds to secure circulation, and that it is said on 
nearly every stump in political addresses that the bankers get the inter- 
est of the bonds and then change the bonds for substantially smaller 
bonds, which they loan to the people in the shape of money and then 
get additional interest on that ? That is to say, throughout the whole of 
NAT cur 20 



306 NATIONAL CURRENCY AND BANKING SYSTEM. 

this country where interest is high they claim that bankers get 3 per 
cent on the bonds and then they get money for the bonds and then they 
get anywhere from 6 to 10 per cent on that money, making from 10 to 
13 per cent. That is the way it lays in the public mind. Now, in 
view of that fact, what reason have you to believe Congress will issue 
a 3 per cent bond and provide any arrangement to keep it at par to 
secure notes and then repeal the tax on banks? 

Mr. Williams. I have nothing to say as to what Congress will do; 
but I simply say what is the wise thing to do. This proposition of mine 
is a wise thing, and that is all I can say. 

Mr. Walker. How are they to keep this 3 per cent bond at par so 
the banks can get them at par? 

Mr. Williams. I do not think they would get par; I think they 
would be at a little premium, but I think the 3 per cent bond is the 
best bond to issue because they would never go below par in tight times. 

Mr. Walker. Would you advise the Government to issue bonds to 
bankers at 3 per cent at par continuously, so they might have the 
banks 

Mr. Williams. No, sir ; I would advise them to offer them to the 
public and get the best price they can. 

Mr. Walker. How are you to make the use of money any cheaper 
and make it any more for the advantage of banks to issue money than 
there has been up to the present time, and the testimony of every 
banker, I think, who has come here is that with bonds at a premium 
there is no profit. How are you going to get the banks to issue money 
if there is no profit in it? 

Mr. Williams. I have stated there it will be advisable to take off 
the tax of 1 per cent on circulation. 

Mr. Walker. You would advise the Government to still pay interest 
on the bonds, give its money out, and then to take the tax off the 
banks? 

Mr. Williams. I would. Observe the Chemical Bank issues no 
circulation and we do not intend to, but I think the Government ought 
to go out of the banking business, and it is no more part of their business 
to issue legal-tender notes than it is for them to issue, as during the 
war, the 3-cent pieces. I have now in my possession a 3-cent piece 
issued by the Government of the United States. It is pretty close 
quarters when they get to doing that. 

Mr. Walker. In paper, you mean ? 

Mr. Williams. I do not think it is the business of the Government 
to issue notes at all, and especially for a great Goverment like this that 
ought to have the best credit of any government in the whole world. 

Mr. Walker. What are the express charges per $1,000, nominal 
value, on currency from New York to Washington for redemption? 

Mr. Williams. I really can not tell you. 

Mr. St. John. Twenty-five cents a thousand. 

Mr. Walker. How would you get the national-bank notes back to 
the vaults of the banks promptly, so that each bank would issue its 
own notes, and no other? 

Mr. Williams. I do not mean they should be redeemed by different 
banks in the city of New York, but I mean they should be redeemed in 
the case of New York the same as they are redeemed now in Wash- 
ington and sent home. 

Mr. Walker. I did not ask you what should be done. That is 
interesting, but my point was, What legal restriction or what device of 
any form would you put in the statute so as to induce or compel each 



NATIONAL CURRENCY AND BANKING SYSTEM. 307 

bank to promptly redeem its circulation 1 ? There is nothing in them 
now. In fact, the law is rather against it by making them a legal 
tender between banks. What device do you suggest? 

Mr. Williams. If we get a surplus of bank notes all we have to do 
is to send them to Washington and the Government sends legal tender 
to you. 

Mr. Walker. I understand that. You talked about that. Do you 
mean to say that custom in all national banks is going to make each, 
national bank redeem its notes at some central agency? It is not done 
at the present time. It is ODly $20,000,000 redeemed last year out of 
$175,000,000 ; are you not aware, with currency thus forced back to the 
banks, there ought to be a billion or two redeemed ? Do you know what 
the custom was in the old Suffolk system ? 

Mr. Williams. Yes, sir. 

Mr. Walker. Do you know the proportion of notes issued which 
were redeemed ? 

Mr. Williams. No, sir ; I do not. 

Mr. Walker. Why does not your bank capitalize some of the 
immense surplus it has? 

Mr. Williams. Our surplus profits have all been earned by the bank 
itself, and we have thought it was best for us to let well enough alone. 
We have never considered the question of making our surplus into 
capital. 

Mr. Walker. You have not considered the question? What divi- 
dend has been declared? 

Mr. Williams. We pay now at the rate of 150 per cent per annum 
on the stock, and let the rest accumulate. 

Mr. Walker. How much did you accumulate the last two or three 
years ? 

Mr. Williams. The last two or three years — we had the silver panic 
in 1893, and we did not accumulate so much, but ordinarily we add 
about $300,000 to our surplus profits annually, beside our dividend of 
$450,000. 

Mr. Walker. You spoke about banks springing up at the cross- 
roads or Western settlements and issuing notes, etc. Do you think that 
would be a disadvantage to the country ? 

Mr. Williams. I do. 

Mr. Walker. Do you think it a disadvantage to the neighbors to 
have a bank located there? 

Mr. Williams. I do. 

Mr. Walker. Do you think it is a disadvantage to small towns and 
farmers of the district to have banks in them? 

Mr. Williams. I think they may have too many. 

Mr. Walker. If you will excuse me, the question is what I want 
answered. Do you think it is a disadvantage to these neighbors and 
small towns and the farmers of the district to have banks in them? 

Mr. Williams. I think every bank is a disadvantage which is not 
conservatively managed for the safety of the public, no matter where it 
is located. I think there may be too many banks. 

Mr. Walker. Do you think these banks in the country maybe as 
safely managed as banks in a city? 

Mr. Williams. Oh, yes ; they maybe, but I think they are not. 

Mr. Walker. Do you think the failures of banks in the country 
with a capital of from $50,000 to $100,000 each will show, their aggre- 
gated capital and liabilities, larger than the failed banks in the cities? 

Mr. Williams. I think they are more numerous. 



308 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Walker. I knew that before. They may be more numerous, 
but that is uotthe question. 

Mr. Williams. They could not necessarily be larger in volume, 
because they do not have as large deposits. 

Mr. Walker. My question was, whether the country banks of 
$50,000 to $100,000 capital, in the aggregate sum involved in their 
failures, and the aggregate liabilities involved in their failures, are 
more than the aggregate liabilities of the large banks which have 
failed in cities ? 

Mr. Williams. Well, I could not say. That would be a matter of 
statistics altogether. 

Mr. Walker. If it is not larger, where is the damage to the com- 
munity any more in these failures than the failures of city banks'? 

Mr. Williams. I think that the failures would be more numerous. 

Mr. Walker. It is not the question of being more numerous. If 
any fifty merchants fail for $20,000 each it is no worse than one mer- 
chant failing with an aggregate liability of that? 

Mr. Williams. The B bank could not fail 

Mr. Walker. 1 asked you the question : what do you say in regard 
to that? 

Mr. Williams. What is the question? 

Mr. Walker. My question is, if 50 merchants fail for $20,000 each 
is it worse for the public than it would be if any one merchant should 
fail owing the same amount?. 

Mr. Williams. Yes, it might be, because the assets 

Mr. Walker. Assuming the assets be the same? 

Mr. Williams. If the liabilities were scattered among poorer people 
then it would be worse. 

Mr. Walker. Would not their assets be more scattered and be more 
equitably divided ? 

Mr. Williams. The liabilities of a bank of $50,000 capital would be 
likely to strike poorer people. 

Mr. Walker. You do not think, then, it is for the interest of the 
country to have a banking system that would induce or permit bankers 
to organize smaller banks throughout the country, as in Scotland, but 
you would prefer to keep them concentrated, as in Paris, one great 
bank? 

Mr. Williams. Yes, sir; I would not have the banking system too 
diffuse — too many of them. 

The Chairman. Mr. Williams, some members of the committee desire 
to understand exactly the condition of your bank. What did you state 
the capital was? 

Mr. Williams. Three hundred thousand dollars. 

The Chairman. And the surplus? 

Mr. Williams. The surplus and undivided profits are about 
$7,000,000. The surplus is $6,000,000 and the undivided profits a little 
over a million dollars, making a little over $7,000,000 of surplus and 
undivided profits. 

The Chairman. And how much deposits? 

Mr. Williams. Thirty million dollars. 

The Chairman. What dividend do you pay per annum on your 
stock? 

Mr. Williams. We pay now 150 per cent per annum. 

The Chairman. How long has your bank been in existence? 

Mr. Williams. It was originally chartered in 1823; became that 
from a special charter which expired in 1844. We then reorganized 



NATIONAL CURRENCY AND BANKING SYSTEM. 309 

under the State banking law, the general banking law of the State of 
New York, and remained so until 18G2 or 1863, 1 think it was, when we 
came under the national- banking system. I forget the year. 

The Chairman. You stated the dividend last year was 150 per cent. 

Mr. Williams. Yes, sir. 

The Chairman. What were the undivided profits of that year? 

Mr. Williams. Well, I have not it in mind; but owing to the panic 
our profits last year were not as large as usual. Usually we expect to 
add to our surplus 100 per cent besides the dividend we pay of 150 
per cent. 

The Chairman. That is $300,000 a year? 

Mr. Williams. Yes, sir. 

The Chairman. And a dividend of 150 per cent besides % 

Mr. Williams. Yes, sir. 

The Chairman. Will you state how much of your profits are due to 
the fact that you are organize' i as a national bank, and what would be 
your probable condition if you were simply operating as a State bank 
under the laws of New York? 

Mr. Williams. I do not think that could be readily told, for the 
reason the only advantage we derive from being organized under the 
laws of the United States is that we are permitted to receive national- 
bank deposits, or rather that the deposits of national banks counts as 
their reserve when they are with us. If we were a State bank the 
deposits of national banks out of New York could not count with us 
as a part of their reserve, and I think the national-bank deposits are 
somewhere between $3,000,000 and $1,000,000, but I am not certain. 

The Chairman. Do you pay interest on your deposits'? 

Mr. Williams. We pay no interest whatever on our deposits. 

The Chairman. Neither national banks nor private individuals? 

Mr. Williams. No interest whatever to any one under any circum- 
stance. 

The Chairman. Your profit would principally be made out of their 
deposits ? 

Mr. Williams. Our business comes from confidence. People have 
confidence in us and deposit their money with us. 

The Chairman. It is money which brings 

Mr. Williams. It is money which makes money. 

The Chairman. Which brings interest upon your investment? 

Mr. Williams. Yes, sir. 

Mr. Johnson, of Indiana. Mr. Williams, are you familiar with the pro- 
visions of the bill prepared by Mr. Carlisle and introduced by Mr. 
Springer, and now pending before this committee? 

Mr. Williams. I have read it ; yes. 

Mr. Johnson, of Indiana. I wish you would take that bill up and 
go through with it as briefly as you reasonably can and tell us what 
you think of its provisions. 

Mr. Williams. I have briefly stated here, if you will allow me to 
call your attention to it, "as to the proposed issue of notes secured by 
a sinking fund and a tax to be levied on solvent banks to secure the 
circulation of any number of mushroom banks which would undoubt- 
edly spring up, it will be readily seen that conservative and well-man- 
aged institutions would absolutely refuse to join hands in making good 
losses sure to rise from such failed banks." 

Mr. Johnson, of Indiana. Then you are opposed to the theory of 
protecting the noteholder by a safety fund in place of bond security 
as provided in the existing law? 



310 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Williams. I am, most heartily. I think the national-banking 
system of the United States is the best system which has ever been 
devised by the ingenuity of man, and all it wants is some few amend- 
ments to make it almost perfect. 

Mr. Johnson, of Indiana. But there are other provisions in the 
Springer bill than the one to which you referred in the answer which 
you have just made me, and I would like to have you take these up in 
detail and give your opinion on them. Here is a copy of the bill if you 
desire to look it over, and time will be afforded you. 

Mr. Williams. The bill itself is most skillfully and ably devised; if 
we were to have circulation under any system in which the notes are 
not fully secured it would be a very good system indeed, but I do not 
believe that conservative institutions would join hands in being jointly 
responsible for the circulation of 3,000 or 4,000 banks. 

Mr. Johnson, of Indiana. Well, take now, if you please, what is 
known as the tenth section of the bill which in effect provides for State 
bank issues under certain restrictions to be imposed by the Federal 
Government. What do you think of that feature of the bill % 

Mr. Williams. I think it would be almost impossible to make the 
circulation safe to be issued under such a bill as that. 

Mr. Johnson, of Indiana. What is your opinion, aside from the kind 
of State-bank issue provided for in Mr. Carlisle's bill, as to the relative 
merits of a national system of note issue and a State-bank system of 
note issue? Do you get my idea? 

Mr. Williams. No; repeat that, if yon please. 

Mr. Johnson, of Indiana. Which system do you think preferable for 
circulating notes in this country, a system under Federal control or a 
system exclusively under State control, or a system under joint Federal 
and State control? 

Mr. Williams. Federal control, absolutely. This country has now 
had a circulation in which there has not been a dollar lost for thirty 
years. Prior to that time I have seen the circulation of Illinois State 
banks, secured by the stock of the State of Illinois, as good a State now 
as anywhere, and I have seen that currency discounted 10 per cent. 

Mr. Johnson, of Indiana. But it is argued by those in favor of a 
State-bank system that these defects in the State-bank system occurred 
when there were fewer people and less means of communication, etc., 
and that now it would not be subject to the defects of the old system. 
What have you to say as to that? 

Mr. Williams. There is no system equal to the national-bank sys- 
tem, and there never will be, only improve it up to the times, as it is 
hardly up. The law has hardly been changed for thirty years. Alter 
it a little and it will go all right. Paper money is like dynamite. It is 
worse than po wder; sometimes it is like self-righteousness — the more 
you have of it the worse off you are. It is the most dangerous thing 
in the hands of irresponsible men that can be, and therefore I would 
not put it into the hands of irresponsible men. Where paper money is 
issued by banks which have large capital and large means behind it 
and responsible men who have character and capital and reputation, 
they will keep things straight, as they would in Baltimore under this 
Baltimore plan before your committee. But thousands of institutions 
would spring up with a view of getting a little extra circulation, and 
there would be losses under it just as certain as the sun rises. 

Mr. Johnson, of Indiana. It is your idea then in devising a general 
system of banking and currency that the national-bank law should be 



NATIONAL CURRENCY AND BANKING SYSTEM. 311 

the nucleus and its defects should be amended and its infirmities made 
whole? 

Mr. Williams. Absolutely so. 

Mr. Johnson, of Indiana. What do you consider the greatest defect 
in the present national-banking law? 

Mr. Williams. Well, that is pretty hard. I ought to study on that 
a little. 

Mr. Johnson, of Indiana. It furnishes a safe and sound currency? 

Mr. Williams. Yes, sir. 

Mr. Johnson, of Indiana. In what material particular essential to 
a good currency would you amend it? 

Mr. Williams. The tax ought to be taken off, that is one thing. 

Mr. Johnson, of Indiana. Why? 

Mr. Williams. To enable the banks to make a little profit out of 
the circulation. 

Mr. Johnson, of Indiana. It is your belief that the reason why we 
have not more extended circulation of the national-bank notes is because 
there is no profit in the circulation? 

Mr. Williams. That is the great reason. 

Mr. Johnson, of Indiana. And that it is impossible to get bankers to 
issue circulating notes unless there is some profit on tbe notes? 

Mr. Williams. That is it. 

Mr. Johnson, of Indiana. The act of the bankers making a profit on 
circulation does not necessarily mean that the people are oppressed 
thereby? 

Mr. Williams. ISTot at all. 

Mr. Johnson of Indiana. The bankers might make a profit and yet 
the welfare of the people might still be subserved? 

Mr. Williams. Most certainly. 

Mr. Johnson of Indiana. You take it then that the interest of the 
bankers and the interest of the people in this particular are identical 
and not hostile? 

Mr. Williams. Certainly. 

Mr. Johnson of Indiana. What would you say of a system for 
national banking which would put the control of banks, so far as the 
deposit and discount feature is concerned, under the control of one 
jurisdiction, and the issue of circulating notes under an entirely differ- 
ent jurisdiction? 

Mr. Williams. Well, I suppose you refer to there being no super- 
vision, no law as to reserve for deposits? 

Mr. Johnson of Indiana. No. 

Mr. Walker. As provided in the Carlisle bill. 

Mr. Johnson, of Indiana. What I mean is this, are the functions of 
a bank, so far as it being a bank of discount and deposit upon the one 
hand and a bank for issuing circulating notes upon the other, so suscep- 
tible of separation that the bank may be successfully operated under 
two tribunals, one regulating it as a bank of discount and deposit and 
the other regulating it as a bank for issuing circulating notes? 

Mr. Williams. That can be done but I would not advise it. I think 
it is a great deal better that all banks should be under surpervision. 
The national bank system of examination by examiners is a wonderful 
check on insecure banking. 

Mr. Cox. Mr. Williams, in giving the reason why gold flows from 
this country, as I understand, you assign two reasons. One was the 
rate of interest in the United States being lower than it was in foreign 



312 NATIONAL CURRENCY AND BANKING SYSTEM. 

countries it naturally made the gold seek a higher rate of interest. 
That was one? 

Mr. Williams. That was one ; yes, sir. 

Mr. Cox. Another reason you assigned was fear of the foreign invest- 
ors in this country that their property would be brought to a silver 
basis ? 

Mr. Williams. Yes, sir ; the fear of it. 

Mr. Cox. Those are the words I used, " the fear." Now then I 
understand you to say as a matter of fact that money in New York was 
at a lower rate of interest than it was in foreign countries? 

Mr. Williams. Some of them ; yes. 

Mr. Cox. And that is the reason gold went out? 

Mr. Williams. That is one reason. 

Mr. Cox. That is a thing to which I wish to direct your attention for 
a moment. Now, if there is a lower rate of interest in New York than 
there is in foreign countries under any system would not gold go out? 
Would not the same law govern under any system, provided that the 
rate of interest in New York is lower than in foreign countries? 

Mr. Williams. Money will go where it can be used most profitably. 

Mr. Cox. Certainly; that is what money is for, to make money. 

Mr. Williams. And the rates of interest in the New York market 
have been abnormally low for very nearly a year past. 

Mr. Cox. Now let me call your mind to this point. That is enough 
to bring out all I want on that point. Now you say the rate of interest 
in the city of New York has been very low. Will you tell me about 
what is the rate of interest in New York? 

Mr. Williams. The rate of interest for the past summer has been on 
call money almost uniformly 1 per cent. 

Mr. Cox. That is exceedingly low, Mr. Williams? 

Mr. Williams. Wonderfully low for money. It is now about 1J per 
cent. 

Mr. Cox. Now, suppose I give you a section in the West 

Mr. Ellis. At the rate of 1 per cent per annum, do you mean? You 
mean the rate of interest has been at the rate of 1 per cent per annum? 

Mr. Williams. Yes, sir; on demand money. Time money has been 
2J to 3 per cent, depending upon the length of time. Loans have been 
negotiated for six months at 3 per cent, some of them perhaps on fancy 
securities, on very gilt-edge securities, at little less perhaps than that. 

Mr. Ellis. At a rate of 3 per cent per annum? 

Mr. Williams. Yes, sir. 

Mr. Cox. Now, you think it advisable, while money is at 1 per cent 
on demand in the city of New York, that the Government should issue 
a number of bonds to take up the greenback circulation and pay inter- 
est on those bonds at 3 per cent? You think that this is advisable? 

Mr. Williams. Yes, I do; but I would have them sell the bonds in 
the market at the very best price they can get for them. 

Mr. Cox. But the rate of interest would be 3 per cent? 

Mr. Williams. I think it would be well for the Government to issue 
3 per cent bonds, for the reason sometimes in a panic Government 
bonds fall off and then they might go below 3 per cent. 

Mr. Cox. I want to get some facts, not the reasoning about it. Now, 
if I gave you a section of country involving almost the entire country 
west of the Mississippi Eiver and almost the entire country south of 
the Ohio, when on demand loans the rate of interest is 8 to 15 per cent, 
and in New York it is 1 per cent, how do you account for that? 

Mr. Williams. Because the securities of those sections are not 



NATIONAL CURRENCY AND HANKING SYSTEM. 313 

known in the city of New York, and also because such loans as you 
speak of at such a high rate of interest are not really call loans. 
You can not get your money when you call for it, and if the transaction 
is liquidated it might take years for you to get your money back. 

Mr. Cox. Your securities you have in New York consist generally of 
stocks, bonds, and securities which you can sell on the exchange there 
at once? 

Mr. Williams. Y~es. 

Mr. Cox. Now take a country where there are no such things as that 
apparently, no stocks, no bonds, no collateral, and where they have 
nothing, substantially, but real estate and personal credit. Now, do 
you think those countries ought to be excluded from having banks'? 

Mr. Williams. Not at all. But I would not have a bank at every 
crossroad. 

Mr. Cox. But suppose we have one at every crossroad? 

Mr. Williams. Where are they going to get the money? 

Mr. Cox. That is the point they look up. You will have them 
wherever the community wants them. You will have as a money 
deposit 30 per cent in greenbacks to secure that circulation; you then 
give a first lien upon all the assets of the bank; you then make every 
stockholder liable to the extent of his stock. Now, I ask you, with 
such security as that, is there any danger in the issue? 

Mr. Williams. My dear sir, the first thing, before you get a bank 
at all, is that you have got to get the capital stock subscribed, and nine 
out of ten of such banks would whip the devil around the stump in 
getting the capital stock subscribed and deposit-; 

Mr. Cox. Do they ever whip the devil around the stump in large 
cities ? 

Mr. Williams. I do not say they do not. 

Mr. Cox. Then if they do 

Mr. Williams. But they will whip him around the stump anywhere 
that they can turn a penny. 

Mr. Cox. Is not the same restraint upon the man in the rural country 
to prevent whipping the devil around the stump as there is in the city? 

Mr. Williams. Yes. sir. 

Mr. Cox. I do not see then the force of your argument? 

Mr. Williams. You try and see it, and you will see it is more easy 
to whip the devil around the stump in the cross corners than in a large 
community. 

Mr. Cox. You think you can whip him better in the country than in 
the city? 

Mr. Williams. I mean those fellows in the city will go to the 
country and whip him around the stump. 

Mr. Cox. Now, one word ; did you ever accept any paper from the 
Southern or Western countrv? 

Mr. Williams. Lots of it. 

Mr. Cox. Wait a moment, you have not heard my question — upon 
the personal credit of an individual? 

Mr. Williams. Lots of it. 

Mr. Cox. On the personal standing of an individual? 

Mr. Williams. Lots of it. 

Mr. Cox. Is not it your rule that when a rural bank applies to your 
bank for rediscount, that the rural bank has to indorse the paper? 

Mr. Williams. Yes, sir. 

Mr. Cox. So. then, you charge a rate of discount for the paper; then 



314 NATIONAL CUKRENCY AND BANKING SYSTEM. 

the rural bank takes it back home, lets its customer have it, and 
charges 8 to 10 per cent. That is the way it works, is it not? 

Mr. Williams. I presume it is. 

Mr. Cox. So that whenever there is a scarcity of money in the South 
or West they are forced to the necessity of coming to the great money 
centers to get it; is that true? 

Mr. Williams. Yes. 

Mr. Cox. That has no impression or influence on your mind 

Mr. Williams. Hold on. That is a fact. I will say that it is a fact. 

Mr. Cox. There is no doubt about that fact. 

Mr. Johnson, of Indiana. But I did not understand the witness to 
say that that makes no impression upon his mind. 

Mr. Williams. No. 

Mr. Cox. I did not finish the question. I am going to ask him that. 
Has your attention ever been called to a system somewhat in the nature 
of banking that prevails in some of the Southern States in regard to 
crops, where they mortgage the crops, before the seed is planted, to the 
commission merchants ? 

Mr. Williams. Yes, sir. 

Mr. Cox. And storekeepers? 

Mr. Williams. Yes, sir. 

Mr. Cox. That is rather an expensive kind of banking, is it not? 

Mr. Williams. Yes. 

Mr. Cox. But you think it is better than to put up banks and make 
the issue good in such rural districts? 

Mr. Williams. No, I do not say that. 

Mr. Cox. And let the bank do the business? 

Mr. Williams. I do not say that. 

Mr. Cox. Do not you think 

Mr. Williams. If the bank is started I want it to be started on a 
right basis. Let them get the capital subscribed. Credit is not capi- 
tal, or at least capital is one thing and credit is another, but if a bank 
is started let them get the absolute cash capital subscribed honestly 
and not let them borrow on the capital stock. Let us have a good 
bank if you have any. 

Mr. Cox. I agree with you there. The only point of difference is I 
think that can be done anywhere in the country, if we have the proper 
laws. Now there is only one more question which I desire to ask you 
in regard to the matter. If these rural banks, assuming they are 
organized honestly, assuming their capital stock is paid, and assuming 
they are well secured and it is all done honestly and fairly and frankly, 
and they are organized all over the country under that system, does not 
that detract from the business of the great money centers in the loan- 
ing of money? 

Mr. Williams. I do not think so. 

Mr. Cox. You do not think it would? 

Mr. Williams. No, sir. 

Mr. Cox. Then it could not hurt them if the bank is the worst sort 
of a bank? 

Mr. Williams. There is no objection to them if they are good, 
honest banks. There is no objection whatever if they are good, honest 
banks. 

Mr. Cox. Well, you would have an objection to a dishonest bank 
anywhere? 

Mr. Williams. Certainly. 



NATIONAL OUKKENCY AND BANKING SYSTEM. 315 

Mr. Cox. So at least the only objection you have to such banks rests 
on the fact you are afraid of dishonest banks? 

Mr. Williams. I would not have a bank where it is really not needed. 

Mr. Cox. But if a man puts money in honestly where it is not needed, 
he is the one who suiters ? 

Mr. Williams. Yes, I agree with you. 

Mr. Cox. Ought not he to have the liberty of doing it ? 

Mr. Williams. Certainly. ■ 

Mr. Cox. So your whole objection reaches down to the one point in 
regard to smaller banks, and that is you are fearful there will be frauds 
practiced by them ? 

Mr. Williams. Exactly. 

Mr. Cox. And that they will not be good ? 

Mr. W t illiams. That is it. 

Mr. Cox. Now, let me ask you, as a banker, with capital stock paid 
in, 30 per cent deposited of legal-tender notes, and liability of stock- 
holders, honestly executed, would not the issue based on that be as 
good as any money ? 

Mr. Williams. It probably would be in the long run. It probably 
would be, but it would not be equal to the security of United States 
bonds behind the circulation. 

Mr. Cox. One word more. You took out your circulation in your 
bank and you charge 1 per cent on demand loans. That is a low rate, 
of course. You draw interest upon your bonds every quarter, do you 
not? That will substantially give you 5 or 6 per cent on your invest- 
ment from 4 to 6 per cent? 

Mr. Williams. No. 

Mr. Cox. How much will it give you? 

Mr. Williams. How is that? 

Mr. Cox. You deposited bonds and the Government pays interest* 
They are 4 per cent bonds? 

Mr. Williams. But you can not buy at par, you buy at a premium. 

Mr. Cox. That is like every other investment? 

Mr. Williams. Yes. 

Mr. Cox. I am talking about what you realize, not what it cost. 
You get 4 per cent from the Government and you loan at 1 per cent on 
demand. Will not that make your money, assuming the bond was 
bought at par, make from 4 to 6 per cent? 

Mr. Williams. If you assume the bonds were bought at par; but 
you can not assume it. You can not buy United States bonds at par, 
except the 2 per cent bonds, and of the 2 per cent bonds the Gov- 
ernment have outstanding about $25,000,000, and they sell for a little 
under par, but you can not talk about getting 4 per cent bonds at 
par, or 5 per cent bonds at par, or 6 per cent bonds at par. 

Mr. Cox. If you will permit me to ask you, what did your bonds cost 
you when you bought for your bank ? 

Mr. Williams. We bought them twenty years ago. 

Mr. Cox. Well, I know, but what did they cost you, Mr. Williams? 

Mr. Williams. Our bond deposit with the Government is $50,000 
and they are currency sixes, and I think they cost a little under par, 
but I am not certain. 

Mr. Ellis. I would like to get you to state, if you will, what, in your 
judgment, has conspired to bring about the low rate of interest which 
you say has prevailed for a year or more in New York? 

Mr. Williams. Diminution of business — stagnation in business, I 
might probably say — reduction in the prices of all kinds of merchan- 



316 NATIONAL CURRENCY AND BANKING SYSTEM. 

dise and produce, such as cotton, wheat, and manufactured goods. 
Say, for instance, Clafflins, who have sold 20 per cent more in goods 
during the first six months of the year than the last, 20 per cent more 
in quantity but in value vastly less. The reduction in the rate of 
interest is stagnation and diminution in business, the low price of pro- 
duce, and the low price of manufactured goods. That is largely it. 

Mr. Ellis. You have stated now, as far as itoccurs to you at present, 
the chief causes which have brought about the result you have indi- 
cated? 

Mr. Williams. Yes, sir. 

Mr. Ellis. Let me ask this question. Take, for instance, my State, 
Kentucky — the city of Louisville, which is the largest city in that State. 
Now the rate of interest in the last year and year and a half has been 8, 
9, and 10 per cent, and during the panic of last August and September we 
could not get money at 15 per cent on Government bonds or anything 
else. How do you account for these widely varying rates of interest, 
for instance, in the city of New York and the State of Kentucky, in one 
and the same time? 

Mr. Williams. The money which is loaned in New York is money 
which is largely of depositors, and banks having it on deposit must be 
prepared to pay it out at any moment, and consequently they loan 
large amounts on call, and they keep a large amount of cash on hand. 
My own bank has had long back from $12,000,000 to $15,000,000 in 
cash to go toward paying its depositors. The money is largely the 
money of depositors, and the banks must be x>repared to pay that money 
on call at any moment when it is called for. They can not go and loan 
that on call at Louisville no matter how good the security is with a 
view of getting it back at any moment, consequently they can not loan 
money there on call. They must loan money so that they can get it 
and have it on hand to pay depositors when they call for it. 

Mr. Ellis. Does this make the difference in the rate of interest in 
your judgment? 

Mr. Williams. Yes, that makes it largely. The deposits of the 
banks of the city of New York are $500,000,000, all of it payable on 
demand. How are the banks going to pay depositors on demand? The 
banks of New York are loaning largely their deposited money, as I 
observed, and they have got to be prepared to pay it, and they keep, first, 
a large amount of cash on hand. Then they keep a large amount of 
collateral on hand, then they keep a large amount of bills receivable 
running at maturity, and this enables them to always be prepared to 
cash their deposits when called for. 

Mr. Ellis. That will account perhaps for the difference as far as it 
relates to call loans, but let us take the commercial loan of ninety days 
or four months' loan. How would you account for this vastly different 
rate of interest in New York and Kentucky and the South generally? 

Mr. Williams. I have been buying paper — I buy a large amount of 
commercial paper, and I buy the notes of the best houses in the differ- 
ent cities, but I want something fireproof, that is ironclad, and I have 
been buying such paper, and such paper was selling last summer at 4 
and 4J per cent, and the bankers in Louisville they can not make any 
money unless they get 6 per cent, and when money is tight they prob- 
ably loan to their custumors at 6 to 8 per cent, and when money is 
easier they expect their customers to respond to that and pay a good 
round rate, but I have been buying paper all the summer at 4 to 4£ 
per cent of the best houses in the different cities in the country. 

Mr. Walker. South and West? 






NATIONAL CURRENCY AND BANKING SYSTEM. 317 

Mr. Williams. South and West. 

Mr. Ellis. Would you suggest, Mr. Williams, auy amendment to 
the present currency law which would obviate or tend to obviate this 
disparity in the rate of interest throughout the country on first-class 
loans? 

Mr. Williams. The first and most essential thing in all kinds of 
business is confidence. Let j^our bank have the unlimited confidence 
of the people in their section, and they will bring out their money 
from their stocking feet and will put it in the banks, and that will give the 
bank deposits with which to loan money, but I have no method of making 
money. This fiat money is all moonshine. If we have got any money 
we want it to be money. The populace and peer who have got a dollar 
in their pockets want a good dollar, and they always will want a good 
dollar. A bank, to be successful, must have the confidence of the com- 
munity in which it is placed, and it must not overdo in business and loan 
too much. Merchants do too much and go to the banks and make their 
wants known and make the banks loan too much, and there is a good 
deal of business which is overdone that is to be avoided. 

Mr. Ellis. Well, will you state now all the remedies which you would 
propose to obviate this evil ? 

Mr. Williams. Well, I do not know • it is a thing to obviate itself. 
We are not going to put our money — the Chemical Bank or other banks 
in New York are not going to put their money where it can not come 
back. We want confidence, and to know we are going to get our money 
back. 

Mr. Brosius. Mr. Williams, the chief complaint made against the 
present national banking system is its lack of elasticity. I want to 
ask you what may seem to be a trite question. What constitutes elas- 
ticity in a bank currency'? 

. Mr. Williams. Its facility of redemption and its facility for being 
called forth by legitimate business when it is wanted. 

Mr. Brosius. In other words, always having on hand the currency 
to pay out if an increase is needed at any time? 

Mr. Williams. Yes, sir. 

Mr. Brosius. Now, does that principle or that quality of currency 
concern itself about the source from which the notes emanate or the 
security which is behind the notes ? Do you understand me ? 

Mr. Williams. The people will not take the notes, or, if they take 
them, they will not keep them unless the notes are secure, unless they 
have confidence in the notes. 

Mr. Brosius. I understand that; that is very true, but the principle 
or quality of elasticity does not depend upon whether the note was 
issued by the Government of the United States or issued by the bank 
itself, provided it is there to go out when the need requires ? 

Mr. Williams. That would seem to be true. 

Mr. Brosius. Now, if a bank has issued a circulation upon the basis 
of Government security and they can afford to hold bonds of sufficient 
amount to supply themselves with all the currency that they need to 
meet the demand, that currency would be elastic, would it not! 

Mr. Williams. So far as that kind of circulation could make it 
elastic, but I have said nothing about bank checks, and the great busi- 
ness of the country is done by bank checks. 

Mr. Brosius. I understand that, but we can not legislate as to the 
checks. Then, essentially, a currency based upon Government bonds 
may be as elastic as currency issued against the bank's assets alone? 

Mr. Williams. Well, with this difference, that issued on Government 



318 NATIONAL CURRENCY AND BANKING SYSTEM. 

bonds it would be restricted, while issued by the bank itself without 
restriction, it would put out this currency, and keep it out as fast as it 
could. It could discount the notes of Tom, Dick, or Harry with the 
agreement that these notes should be taken oft' into Montana and issued 
as circulation there. 

Mr. Brosius. I never thought of any kind issued without any limit. 
I am assuming the limit is the same in both instances, say 90 per cent 
of the capital stock in both instances. The point I make is that the 
currency issued by the bank, based on Government security, is just as 
elastic as the same amount of currency issued against the assets of a 
bank without the Government security 1 ? 

Mr. Williams. Just as elastic? Well, it is hardly elasticity. There 
is rather more restriction where the Government bonds are behind it. 

Mr. Brosius. To what restriction do you refer"? 

Mr. Williams. They can only be issued up to the bonds which are 
behind. 

Mr. Brosius. Well, I take that limit into consideration in all my 
inquiries. 

Mr. Williams. And your other supposition, where they could issue 
notes against a certain part of their capital, why they would discount 
notes and pay for them in these notes of their own up to a certain part 
of their capital. 

Mr. Brosius. Oh, certainly it has to be within limits, say 75 per cent. 
Say they can issue 75 per cent of the capital stock in bank notes, 
secured by Government bonds as under the present law. Now, I am 
assuming they may have one kind of currency or the other. If they 
have the national-bank currency as they now have, and have enough 
of it, that is if they can afford to have enough ot it, will not they be as 
elastic as currency issued against the bank's assets ? 

Mr. Williams. It seems to me it would be sufficiently elastic. 

Mr. Brosius. Then there is not anything, as I understand you, 
inherent in the present system of bank currency that makes it neces- 
sarily unelastic % 

Mr. Williams. No, sir. 

Mr. Brosius. Just one more question and I will not detain you any 
further. I did not quite understand how you proposed to supply the 
bonds to be used as a basis of the circulation. 

Mr. Williams. By funding the legal tenders. 

Mr. Brosius. You would fund the legal tenders ? 

Mr. Williams. I would get them out of the way. 

Mr. Brosius. That is a matter I did not understand. You did allude 
to another mode of disposing of the greenbacks by paying them off 
out of the surplus 

Mr. Williams. I would advise the funding of $250,000,000 of legal 
tenders, and the remainder to be redeemed out of the surplus revenues 
when we have any. 

Mr. Brosius. That is the very point I was bringing out. You would 
advise paying half of the legal tenders by issuing bonds and rely upon 
the surplus for the payment of the balance ? 

Mr. Williams. That is what I would do for the present. 

Mr. Brosius. Then you would continue the national-banking sys- 
tem substantially as it is now ? 

Mr. Williams. I would. 

Mr. Black. You spoke of what you denominated a call loan on 
which money has been loaned in New York at 1 per cent. Have not 
you a loan there known as a demand loan? 



NATIONAL CURRENCY AND BANKING SYSTEM. 319 

Mr. Williams. Demand loaus and call loans are synonymous. 

Mr. Black. I had information you had loans beside the call loans 
on which you had to give a day or two's notice? 

Mr. Williams. That may be stipulated in the notice, on demand 
after one day or eight days. 

Mr. Black. You have such loans ! 

Mr. Williams. Oh, yes. 

Mr. Black. Do you give any notice on a call loan ? 

Mr. Williams. On what is called a sharp-call loan there is no 
notice at all. The understanding in Wall street is that the demand 
must be made before 11 o'clock. 

Mr. Black. Then you have another loan on which you do give 
notice where it is stipulated in the note? 

Mr. Williams. Yes. 

Mr. Black.' What difference is the rate of interest between those 
two? 

Mr. Williams. Well, it is a matter of negotiation, and usually in 
the market as it has been during the past few months there is very 
little difference. Usually a little notice of eight days is simply for the 
convenience of the borrower. 

Mr. Black. Did not you speak about a loan here at 4J per cent? 

Mr. Williams. I spoke of purchasing commercial paper issued by 
merchants in different parts of the country, in the different cities of the 
country, first-class notes made by merchants in different parts of the 
country, at 4 J per cent. 

Mr. Black. Was not some paper last summer down to 2 per cent? 

Mr. Williams. No, sir. The only loans which were negotiated at 
2 per cent as a rule were those which are call or nearly call, thirty days, 
or something like that. 

Mr. Black. We will get away from these call loans and go to loans 
which you make with your merchants at sixty or ninety days — I do not 
know exactly your time — what is the rate of interest on those loans? 

Mr. Williams. There are very few loans of merchants at less than 
four months. It is usually four-months' paper. 

Mr. Black. What is the rate of interest on those? 

Mr. Williams. Last summer the rate has been from 3 to 4 per cent. 
It is now from a half to 1 cent better. 

Mr. Black. Well, on what security; what security do they furnish 
their own paper? 

Mr. Williams. This is single-name paper. 

Mr. Black. Without any collaterals? 

Mr. Williams. And without any collateral. 

Mr. Black. I would like to direct your attention to this condition of 
things somewhat in the line of what Mr. Cox suggested. In large sec- 
tions of the country these transactions demand a rate of interest, say 
a minimum rate of 8 per cent. Can you suggest any remedy for that 
condition of things? 

Mr. Williams. These notes are not so well known. 

Mr. Black. They are not known in New York, but they are known 
in the locality where they are offered. They are known to the local 
bank; they are leading merchants and responsible houses. Here is the 
condition: In New York, when one of your merchants goes to your 
bank or some other bank he gets a four months' loan on his individual 
paper at 3 or 4 per cent. The merchants in other localities, a large 
section of the country, who have the same relative standing in that 
locality as your merchant has in New York, just as good, just as relia- 



320 NATIONAL CURRENCY AND BANKING SYSTEM. 

ble and solvent, has to pay from 8 to 10 per cent. I do not mean to get 
the money from New York, but there at home. 

Mr. Williams. But he can not expect New York to be placed at his 
own door. He must make his credit known in New York if he wants 
to borrow money in New York. These transactions regulate themselves ; 
I do not think that is a matter of legislation. 

Mr. Black. I just wanted to get your opinion about it, but perhaps 
I have not made my self clear ? 

Mr. Williams. I think I understand it. 

Mr. Black. He is not asking for money in New York, but he is ask- 
ing for money at home, and the banks have money, and they will not 
loan it out for less than 8 per cent, and sometimes more than that? 

Mr. Williams. Well, they have the right to get whatever they can. 
I do not think it is a matter for legislation to step in and correct. 

Mr. Black. You do not think we ought to legislate on that line? 

Mr. Williams. No ; I do not. 

Mr. Black. Now, Mr. Williams, how long was your bank a State 
bank — just approximately? 

Mr. Williams. Oh, for nearly forty years. 

Mr. Black. Was it a bank of issue? 

Mr. Williams. Yes, sir. 

Mr. Black. Will you please state what its career was during that 
period, as to whether it was successful or not? 

Mr. Williams. The success of the Chemical Bank depended upon 
the individuals who managed it. It started in 1824, and it was not a 
very great success until 1844, when new men came in charge of it, and 
then its success began by conservative management, and I do not 
know — I do not think it depended at all upon the State or national 
system as to its success. 

Mr. Black. From 1824 until 1862 or 1863 it was a State bank? 

Mr. Williams. A State bank. 

Mr. Black. A State bank of issue? 

Mr. Williams. A State bank of issue. 

Mr. Black. And a successful State bank of issue? 

Mr. Williams. Yes. 

Mr. Black. Commanding the confidence of the community and yield- 
ing a reasonable profit to those who were interested in it?. 

Mr. Williams. Yes. 

Mr. Black. Well, if a bank could be organized and managed by 
such gentlemen as composed that, men of integrity and conservatism, 
and all these other qualifications, do you see any reason why such a 
bank could not be made such a success now? 

Mr. Williams. Not the slightest. I have every reason to believe it 
could. I might say, in regard to circulation, that in New York State in 
1824, when the Chemical Bank was first started, the circulation was not 
even registered. It was redeemable by each bank by itself and only at 
its own counter. It gave no security for anything, and the circulation 
was not registered at Albany, and it was only after the act of 1838 was 
passed notes issued by the banks were registered, and the national- 
bank act was molded after that act of 1838. 

Mr. Black. The national-bank act, then, is molded after the State- 
bank system? 

Mr. Williams. Molded to a certain extent after the State law of 
1838 in the State of New York. 

Mr. Black. Do you know the persons who have recently been the 



NATIONAL CURRENCY AND BANKING SYSTEM. 321 

purchasers of these Government bonds and who have drawn gold out 
of the Treasury for that purpose? 

Mr. Williams. If you name them perhaps I can tell you. 

Mr. Black. Will you look at that list and kindly say whether they 
are the persons'? 

Mr. Cox. Put that in the record. 

New York Life Insurance Company $2, 000, 000 

Bank of America 1, 330, 000 

Bank of the Manhattan Company 1, 000, 000 

Union Trust Company 1, 000, 000 

I. & S. Wormser 700, 000 

National Bank of Commerce 1, 977, 000 

American Exchange National Bank 1, 289, 000 

Fourth National Bank 1, 878, 000 

United States Trust Company 618, 000 

Bank of New York National Banking Association 588, 875 

J. & W. Seligman . 500, 000 

Corn Exchange Bank 870, 000 

Kulm, Loeb & Co 600, 000 

~New York Security and Trust Company 600, 000 

Bank StateofNew York 500,000 

Mr. Williams. The New York Life Insurance Company. I think I 
have seen this list. It is a list of the institutions which drew money 
out of the Treasury when the first $50,000,000 of bonds were issued, 
and not of institutions which have drawn money out of the Treasury 
to pay for this last issue of $50,000,000. The New York Life Insurance 
Company have here $2,000,000. Those were the first $50,000,000 of 
Government bonds issued, and it was pretty difficult work in New York 
to make up the amount of $50,000,000. I know we worked pretty hard 
at it and I did missionary work myself to get this subscribed to. 
Colonel Strong, who is now our mayor, is a director of the New York 
Life, and I think he was instrumental in getting that subscription 
taken. I know I went to see him and urged the thing upon him and 
he urged it upon the New York Life. It is a life company and they 
had the money to invest but had no gold, and consequently had to 
draw the gold from the Treasury to subscribe to the first $50,000,000. 
I presume that the Bank of America did not have the gold. The 
Union Trust Company, they had no gold. They used their legal tenders 
to buy bonds ; they had to buy the gold to pay for them. I presume 
that is the same thing with the rest of them. 

Mr. Black. You think this is a list of the purchasers of the first issue 
and not of the last'? 

Mr. Williams. I know it absolutely. 

Mr. Black. Well, were you part of that syndicate who purchased the 
bonds, your bank ? 

Mr. Williams. Not the last 5 no, sir. 

Mr. Black. The first? 

Mr. Williams. We helped along. I took $1,000,000. I did not want 
them ; I took them to make the thing go. 

Mr. Black. Did you use the greenbacks'? 

Mr. Williams. No, sir, we used the gold; paid it in honest gold. 
For the first $50,000,000 we paid in about $2,800,000. We did not buy a 
cent of gold from the Treasury. For this last loan we paid $4,000,000 
of gold. We paid over $4,000,000 of our own stock of gold and have 
not drawn a single cent from the Treasury. 

Mr. Black. One of the grave difficulties which seems to bring about 
the present condition is the ability of these holders of notes to go to 
the Treasury and demand gold for them. That can be done by what 
NAT cur 21 



322 NATIONAL CURRENCY AND BANKING SYSTEM. 

are commonly called the Sherman notes, as well as the greenbacks, can 
it not? 

Mr. Williams. Yes. 

Mr. Black. As far as the Sherman notes are concerned, can we not 
rid ourselves of that trouble by having the Treasury pay them in silver*? 

Mr. Williams. It could be done, of course, but to the ruin of the 
whole of our banking system. 

Mr. Black. Would there be any violation of law in it? 

Mr. Williams. That you can judge better than I, because you know 
more about the law than I do. 

Mr. Black. Would there be any violation of faith in it? 

Mr. Williams. I think there would be, most unquestionably. When 
the bonds of the United States were made payable in coin there was 
no coin used but gold. 

Mr. Black. We are not speaking now about bonds, but about the 
Sherman notes issued under the act of 1890, which authorized the pur- 
chase of silver bullion and the deposit of the bullion as security against 
these notes. 

Mr. Williams. If you remember, I suggested in the paper which 
I read that those notes might be made redeemable in silver bullion at 
its market value, and that would make them secure and inspire confi- 
dence in them, but the Government would have to stand the loss, as it 
ought to. 

Mr. Black. You say that it might be done in that way? 

Mr. Williams. Yes, by a change in the law. 

Mr. Black. I am speaking now of existing law, and of the very law 
under which those notes were issued. 

Mr. Williams. You can judge of the law better than I can, but I 
think that it would be one of the greatest disasters that could befall 
the country. 

Mr. Black. Why? 

Mr. Williams. For this reason. The loss to the country by the sil- 
ver panic last year was worth more than all the silver. If the silver 
mined in the United States had been taken and dumped into the ocean 
it would have been less loss than the loss to the whole country by the 
depression of business and by the fall in prices which occurred in con- 
sequence of the panic of 1893. 

Mr. Black. I am not speaking of all the silver. I am calling your 
attention to this particular act of 1890 and to the redemption of the 
particular notes issued under that act. Now, it is no violation of good 
faith for an individual or a Government to pay debts in accordance with 
a contract. 

Mr. Williams. These notes were issued under a law which provided 
that gold and silver should circulate on a parity. When they cease to 
circulate on a parity by the action of the Government then that law is 
broken and the notes are not redeemed according to the spirit of the law. 

Mr. Black. There is another provision in the law besides the one 
declaring the policy of the Government to maintain parity. Besides 
the provision which declares the public policy of the Government as to 
parity, there is a third section of the act which requires the Secretary 
of the Treasury to coin so much of the bullion up to the 1st of July, 
1891, and after that time to coin of the silver bullion purchased under 
the provisions of that act as much as may be necessary to provide for 
the redemption of the Treasury notes as therein provided for. Now, 
if the Secretary coins that and pays it out on these notes in the very 
terms of the contract, is there any violation of public faith in that? 



NATIONAL CURRENCY AND BANKING SYSTEM. 323 

Mr. Williams. Suppose he does, aDd suppose he coins these dollars 
and pays them out, they will be paid in again for customs. 

Mr. Black. Why, what will be paid in for customs? 

Mr. Williams. The silver notes. They will be paid for customs, 
and then what is the Secretary going to do with them ? They can take 
these standard dollars and demand silver certificates for them at the 
Treasury, and then the Secretary has to receive these silver certificates 
for customs. 

Mr. Black. Well, suppose he has ? 

Mr. Williams. Then he has not got nothing else to pay out but 
the silver certificates. 

Mr. Black. Has he got anything else now? 

Mr. Williams. He is getting rapidly down to that. 

Mr. Black. Have we not already got down to it under your con- 
struction of this law, and of how it ought to be enforced? 

Mr. Williams. I think not. 

Mr. Cobb, of Alabama. You spoke a moment ago in answer to a 
question by Mr. Black about the different rates of interest. Now I 
want to ask you this question — whether legislation to a large extent 
makes a difference in the rate of interest between New York and other 
sections of the country to which your attention has been directed? 
Does not the difference in the interest for money in Wall street and the 
interest for money in the South and West originate largely from the 
law, and is it not produced by the law of the land? 

Mr. Williams. I think not. The usury law of the State of New 
York is most barbarous. Under it a man can be sent to State prison 
for taking more than the legal rate of interest, which is 6 per cent, and 
yet we see hardly anything passing at 6 per cent. 

Mr. Oobb, of Alabama. If it is the usury law which makes the dif- 
ference, then it does grow out of the law at last. 

Mr. Williams. I do not think that has much to do with it in times 
like the present. But I believe that there should be no usury law at 
all. I think that the whole thing- if left to itself would regulate itself. 

Mr. Cobb, of Alabama. Do you suppose that it is the business con- 
ditions of the country, independent of law, that make the difference in 
the rates of interest in New Y^ork and, say, in Augusta, Ga? Has the 
law nothing to do with it? 

Mr. Williams. I do not think the law has much to do with it. 
Money now flows to those centers where it can be recalled at any 
moment. 

Mr. Cobb, of Alabama. Assuming that the banks are properly 
organized under laws which make the bill holder secure, is it not true 
that the more banks the country has and the more widely they are 
diffused the better it is for the people, provided always that the system 
of relying on banks for currency is adopted. 

Mr. Williams. No 5 I do not think that it is better for the people. 

Mr. Cobb, of Alabama. Would not that condition bring the banks 
and the people together so that money can be borrowed at a low interest? 

Mr. Williams. I do not think it would. 

Mr. Cobb, of Alabama. Why ? You have said that one reason for 
low interest in New York is that the banks are there and the people 
are there who want the money. Now, if you bring the banks and the 
people together in the South and the West would you not have the 
same conditions? 

Mr. Williams. There is no use in talking about making money. 

Mr. Cobb, of Alabama. I am not talking about making money, but 



324 NATIONAL CURRENCY AND BANKING SYSTEM. 

about making banks. Are not the banks a mode of supplying people 
with money? 

Mr. Williams. The bank note is good for nothing unless it is redeem- 
able in cash on demand. 

Mr. Cobb, of Alabama. Is it not true that the banks of the country 
are the agencies through which the people borrow money? 

Mr. Williams. Yes. 

Mr. Cobb, of Alabama. And is it not also true that the farther the 
bank is removed from the people who want the money, the greater the 
burden on the people who borrow it? Is it not true that the high rate 
of interest in the South, and the depressed condition of things in the 
South and West, from the want of money, originate largely from the fact 
that the banks in New York are so far removed from the peox>le who 
want the use of money — so far removed from the people who want to 
borrow money? 

Mr. Williams. Money centers in New York — how are you going to 
.get it out? 

Mr. Cobb, of Alabama. I am asking you the question. I want to know 
of you as a banker whether it is not true that the interests of the people 
would be subserved if you carried banks right among them. 

Mr. Williams. And have a bank at every man's back door? 

Mr. Cobb, of Alabama. Yes, if the interests of the country demand it. 

Mr. Williams. I do not object to banks if they are honestly organized, 
if they are well organized and are in honest hands. 

Mr. Cobb, of Alabama. Assuming that they are well organized and 
are in honest hands, would it not be to the interest of the people to have 
banks generally established throughout the country? 

Mr. Williams. They would not be well managed. Theprivilege would 
be abused. A bank has got to be a conservative institution. It can 
not do business properly on cats and dogs. It can only do business 
properly when in the hands of upright people and when it is confined to 
upright transactions. 

Mr. Cobb, of Alabama. Do you believe it possible for any bank to 
do business on a cat and dog security, if the law under which that bank 
is organized is of such a character as to make such a thing impossible? 

Mr. Williams. I do not believe you could make it impossible. 

Mr. Cobb, of Alabama. Why? The two points made by you are that 
the rate of interest in the South and West has been increased and the 
burden of supplying the people with money made more difficult because 
of the fact that in those sections they have not banks, but have to 
resort to New York and other commercial centers in order to get money. 
The question that I ask you under that assumption is whether if. such 
a condition of affairs is made by law as that they can have safe and 
secure banks among the people who desire to borrow money — I mean 
good banks with sufficient capital and honestly and properly man- 
aged — it would not be better? 

Mr. Williams. Yes, if the bank is in a place where there is busi- 
ness enough to warrant it. 

Mr. Cobb, of Alabama. Would a bank go where there is no busi- 
ness to warrant it? 

Mr. Williams. I am afraid it would not. 

Mr. Cobb, of Alabama. Do you agree with gentlemen who have been 
before the committee in the opinion that in the Carlisle bill abundant 
security is given to banks that contribute to pay the bills of failed banks? 

Mr. Williams. I am opposed to that feature of the Carlisle bill. 

Mr. Cobb, of Alabama. Do you agree that under the Carlisle sj^stem 



NATIONAL CURRENCY AND BANKING SYSTEM. 325 

the contributing banks are amply secured, so that there is no chance of 
loss to them? 

Mr. Williams. I do not believe that good sound banks would take 
out a dollar of circulation under that clause. 

Mr. Cobb, of Alabama. Why? 

Mr. Williams. Because they would be unwilling to be bound up 
with other banks. 

Mr. Cobb, of Alabama. But if they are amply secured? 

Mr. Williams. The question of ample security is a question of opin- 
ion. Some banks might think the security ample and others not. 

Mr. Cobb, of Alabama. Every banker who has been before the com- 
mittee, except you, has expressed the opinion that the security is ample. 

Mr. Williams. It is ample if no more banks fail than have failed so 
far under the national banking system, but I think there would be more 
failures. 

Mr. Cobb, of Alabama. You do not think, then, that the security is 
ample ? 

Mr. Williams. I do not know: I would not go into it. 

Mr. Russell. Relative to the two recent bond issues by the Govern- 
ment (as brought out by questions of Mr. Black) I wish to ask you 
one or two questions. Did not the banks or financial institutions (in 
New York City, for example) feel it incumbent upon themselves to sub- 
scribe to those issues, or to see to their being subscribed to, in order to 
continue the gold redemption by the United States Treasury? 

Mr. Williams. They did. 

Mr. Russell. I am asking now in relation to the placing of the first 
issue? 

Mr. Williams. Yes. 

Mr. Russell. Did they have the same feeling in regard to the 
placing of the second issue? 

Mr. Williams. Not quite so much, because there was a better feel- 
ing in relation to this last loan, and it was readily seen that it would 
be oversubscribed. But the same desire was manifested. 

Mr. Russell. Taking the two issues together in this last analysis, 
has not the continuance of the gold redemption by the United States 
Treasury been dependent upon banks and financiers? 

Mr. Williams. I think it has been. 

Mr. Black. Assuming, as you seem to have done, that under this 
act of 1890, which requires the parity to be maintained when these 
Sherman notes were presented, they ought to have been redeemed in 
gold, do you think it is a wise financial policy to reissue them and 
continue that so as to make them a perpetual drain upon the gold 
reserve ? 

Mr. Williams. The Secretary has got do so under the x^resent law. 

Mr. Black. He has got to reissue these Sherman notes? 

Mr. Williams. Yes. 

Mr. Black. If the law did not require him to do so, do you think that 
it would be a wise financial policy ? 

Mr. Williams. What should he do? He is to redeem these notes. 

Mr. Black. What does a private individual do when he redeems his 
obligations. 

Mr. Williams. The Treasury is one of the greatest banks in the w T orld 
and it has not got a sufficient reserve. If it had a reserve as the Bank 
of France has, if it had a reserve of $200,000,000 or $300,000,000 instead 
of $100,000,000, then this whole subject would not be thought of and 
we would not be here. But the Secretary of the Treasury is hampered 



326 NATIONAL CURRENCY AND BANKING SYSTEM. 

by law. No bank could carry on business if it were hampered as the 
Secretary of the Treasury is. He lias not got authority to go and make 
a temporary loan if his revenues are run down. He ought to have 
power enough to carry on his business because, as I say, he is one of 
the greatest bankers in the world. We find that we have in our busi- 
ness to keep a large reserve. The Treasury should maintain a large 
reserve, but it has not got it, and there is where the trouble comes in. 

Mr. William St. John was permitted by the committee to ask Mr. 
Williams a question. He said : In the summer prior to the first issue 
of the $50,000,000 bonds there was a period of extreme dullness in the 
money market, and I want to refresh Mr. Williams's memory about it 
because it is important to some things that I want to say. Time loans 
were made in the city of New York at 2 per cent per annum, and sixty- 
day notes of business men were sold at 1 J per cent discount per annum. 
I want to remind Mr. Williams about that, because I can prove it and he 
can prove it by his own books. And (turning to Mr. Hendrix) your 
books will confirm it also. There is no dispute between Mr. Williams 
and myself on any matter of fact. We are the best of friends. But 
that one thing I want confirmed, that is, that money at 1 J per cent per 
annum was secured on sixty- day notes by merchants. 

Mr. Williams. I would not dispute that at all. At the same time 
I should say that these were exceptional transactions, because I have 
taken none under 2 per cent. 

Mr. St. John. But you believe that what I state is true? 

Mr. Williams. Oh, unquestionably so; but I think that these were 
rather exceptions. 



STATEMENT OF WILLIAM P. ST. JOHN. 

Mr. William P. St. John, president of the Mercantile National Bank, 
of New York, addressed the committee. 

He said: Mr. Chairman, you will remember that I declined your first 
invitation to be heard on the topic pending. My apology was, and I 
repeat as my explanation arid excuse for what I shall say, that at this 
juncture, while our primary money is so undetermined, I deem any 
new creation of bank notes, State or national, perilous to the prosperity 
of the United States. 

There is a very widespread unrest of opinion on this topic and the 
allied topic, called the " silver question," even in New York and New 
England. Public opinion is under a newspaper terrorism in New York. 
Men who agree with me fully, and I know many of them of considerable 
wealth, prefer to keep silent for the present. Any nobody who will 
write at length a lot of nothingness adverse to silver money will be 
accorded certain newspaper's space and be dignified into great authori- 
ties. Eejoinder, if complete, and the more complete the more certainly 
is denied even a limited space. Again, other men believe that until a 
change of administration here approaches it will merely cost them 
influence to speak their conclusions favorable to silver money. Then, 
too, certain newspapers shield their readers against intelligence and 
cow them out of any timid convictions they might indulge. 

As an instance, Mr. Horace White's Evening Post a few weeks ago 
quoted at length from the London Economist one Bawlinson's criticism 
of Manchester's complaint of England's gold monometallism as relat- 
ing Manchester to India. The complete rejoinder of two weeks later 
in the Economist, a compilation of facts that refuted Rawlinson totally, 



NATIONAL CURRENCY AND BANKING SYSTEM. 327 

has never even been mentioned by the Evening Post. The Evening Post 
spreads at length in several columns a reprint of a recent paper of Mr. 
McLeod, nine-tenths of which matter is as acceptable to myself, as an 
independent bimetallist, as to anybody else. The real truth which is so 
universally acceptable is a pad of dignity to the conclusions which they 
do not, in the slightest degree, warrant. And so it goes. 

But conditions current here and elsewhere are forcing the truth upon 
general attention, and a rebellion against this tyranny and conceal- 
ment of facts will manifest itself ere long in New York as elsewhere. I 
have recently been urged by commercial bodies of two important East- 
ern cities to address them at length upon my convictions. I declined 
on the ground that I have talked so much that I deem it unwise to be 
heard again on the topic until invited to speak by my immediate asso- 
ciates in the city of New York. 

The paper that I now ask the privilege of reading was prepared for 
a monthly magazine of importance. I asked the space at first but after- 
wards withdrew the request. The editor urged my carrying out my 
first intention. His private secretary heard the matter in the rough and 
urged me the more to complete it for his magazine. I learn this morn- 
ing that more acceptable matter will crowd me out, which is only 
another evidence of what you gentlemen, aiming to serve your country, 
are entitled to complain of in the Eastern press. 

I would like to explain in advance a term I use for the sake of 
brevity and without intending offense to anyone, namely, "goldites." 
The "goldites" are that innnitesimally small but prodigiously influen- 
tial coterie in the United States who believe that no one nation, not 
only, but not all the commercial nations combined in a concert of laws, 
could provide unlimited coinage for gold and silver on one ratio, and 
attract thereby the gold and silver coins, or certificates for them, into 
concurrent circulation as money. 

Mr. St. John then read the following paper: 

GOLD MONOMETALLISM THE PERIL OF THE UNITED STATES.— BI- 
METALLISM ATTEMPTED INDEPENDENTLY, TO ACHIEVE BIMETAL- 
LISM IN EUROPE BY THE EQUIVALENT OF A CONCERT OF LAWS. 

Under official dictation, tutored by the one most aggressive of all 
our handful of "goldites" in the United States, Congress fiddles with 
bank notes while the burning issue is our primary money. 

Identically tutored, our Chief Executive has required his Secretary 
to abandon the option conferred by law upon the United States and 
grant to holders of the United States notes the right to exact gold 
always, silver never, as their redeeming coin. Had the option to 
redeem in silver dollars been exercised boldly at the time when only 
3,000,000 silver dollars were owned by the United States, with an 
ownership of $116,000,000 gold, any possible alarm could have been 
laughed to scorn. To attempt to seize upon and exercise the option 
now, or under immediately prospective conditions of our Treasury, 
would be to court all the perils of disaster. 

Identically tutored, the demand appears, "one step at a time," to sub- 
stitute bank promises of money for $907,000,000 of the primary and 
secondary money which they promise. Were the scheme adopted and 
successful, the result achieved would be $907,000,000 of new bank 
promises, $207,000,000 of existing bank promises, and $1,700,000,000 
of promises called deposits, an aggregate of $2,854,000,000 of national- 
bank liabilities payable on demand, resting or wrangling on our avail- 



328 NATIONAL CURRENCY AND BANKING SYSTEM. 

able supplies of gold. The pretense of the tuition is that this is 
" sound finance." 

Bedundant bank notes have invaribly banished gold and silver. 
They never were suspected of enticing either into money. And national 
banks can not hope for popular consent to their redeeming their circu- 
lating notes in officially discarded silver dollars. 

LAW THE LIFE PRINCIPLE IN MONEY. 

Money is the creature of law. Money is all domestic. Our $10 gold 
piece is accounted 258 grains of nine-tenths fine gold when beyond the 
jurisdiction of the United States. 

Money and the yardstick have nothing in common. The yardstick 
is an exact, unvarying measure of length. Money is an uncertain, 
variable measure of varying values. The yardstick is Dot bartered for 
commodities. Money is the means of acquisition and momentarily the 
measure of value of the thing acquired. The yardstick is a unit of 
length. The dollar as a a unit of value" is preposterous. Our Ham- 
ilton- Jefferson statute, founding the mint, provided a dollar as our 
a unit of account." That dollar of 1792 and the dollar of 1894 contain 
identically 371.25 grains of silver. 

AGGREGATE OF MONEY DETERMINES PRICES. 

The aggregate of all money afloat and in bank in the United States, 
is our true measure of normal value of commodities here. The aggre- 
gate of money of all nations trading internationally is the measure of 
normal value of all commodities consumed by all. Therefore, to enlarge 
the aggregate of money in the trading world, is to raise normal prices 
of commodities everywhere. To enlarge the aggregate of money in 
the United States is to raise normal prices for home and internationally 
consumed commodities here. Per contra, to diminish the aggregate of 
money in the United States is to lower all normal prices here; and to 
diminish the world's aggregate of money is to lower all normal prices 
of internationally moving commodities in all the trading world. 

PERFECTION IN MONEY IMPRACTICABLE. 

Omniscience and infinite integrity in law making, but nothing short 
of these, would yield perfection in money. Perfection in money, thus 
provided, would involve the use of neither gold nor silver, nor any other 
commodity. 

Now, if my caution against it will be quoted along with my descrip- 
tion of it, I will describe perfect money, to wit: 

Any convenient substance of about the " intrinsic" properties of silk- 
ribbed paper prepared to defy the counterfeiter, issued by authority of 
the law of the United States, and promise no redemption whatever, 
except acceptance for all dues to the United States and also made 
receivable and payable for all dues and debts, public and private, 
within the jurisdiction of the United States. But my caution against 
any attempt at such perfection in money of the United States is that 
imperfect humanity has not been more safe to handle any near approach 
to it, nor with any other than commodity money, than children are to toy 
with keen-edged tools. The peril is the reasonable certainty of over- 
issue and collapse. 

If United States notes of 1862 and Treasury notes of 1890, together 



NATIONAL CURRENCY AND BANKING SYSTEM. 329 

$497,000,000, were retired, they might all be replaced with logically per- 
fect money as described, provided silver dollars and certificates and 
bank notes were also all retired. The success of the issue would insure 
overissue, and then collapse. 

Bank notes differ only in degree from Treasury notes, for this same 
peril lurking in them. The wary can escape a degree of peril in the 
bank note, refusing it as not a legal tender. But the peril is in the 
bank note, nevertheless, as Jefferson and Andrew Jackson knew. 
Nature's restrictions upon the world's supplies of gold and silver, and 
the burden of the art and industrial uses for these commodities, make 
these safer than irredeemable paper as our tool of trade. 

MINT PRICE MAKES MARKET PRICE. 

Gold bullion and United States gold coin enter Europe with one and 
the same right conferred by law, the right of transition into Europe's 
money. By law gold carries the right of transition into English money 
at the price of £3 17s. 10|d. per Troy ounce, eleven-twelfths and 1 penny- 
weight fine. By law, France, Germany, and the other important con- 
tinental states similarly endow gold. And, by virtue of our law, gold 
carries the right of transition into the money of the United States at 
the fixed price of 23.22 grains pure, or 25.8 grains nine-tenths fine, for 
a dollar. 

Thus, by law, the market price and mint price of gold are one and 
the same, so long as there is gold produced each year more than the 
arts and industries and India absorb. For so long, gold in the lump, 
its weight and fineness being known, is the equivalent of coin in 
Europe and the United States, for the reason that the possessors of 
gold will accept no lower price while the mint price is offered in lawful 
money at the mint; and artisans will not pay more for gold because it 
is obtainable at the mint price by melting the coin. 

IMAGINE SILVER MONOMETALLISM SUBSTITUTED. 

Imagine all these mints of Europe and the United States to deprive 
gold of all further right of transition into money. Imagine the law of 
each of all these nations to grant to silver exclusively the right of 
transition into the money of each, at one juice, equivalent to 371.25 
grains pure (412.5 grains nine-tenths fine) for a dollar. Thenceforth 
the " price of silver" in Europe and the United States would be this 
one mint price. Silver in the lump then, as gold now, its weight and 
fineness being known, would be the equivalent of coin. Possessors of 
silver then would not accept less than this one mint price for it, for the 
reason that lawful money could be had for it, at this price, at the 
mint; and the artisan would pay no more for silver because he could 
obtain it at this mint price by melting silver coin. 

LAW DICTATES THE PRICE OF COLD. 

But, with the support of mints withdrawn from gold and provided 
there is, as some economists aver, a yearly production of gold neigh- 
boring $25,000,000 more than the arts, industries, and India absorb, 
the market price of gold would fall rapidly until the price attained 
would permit the lower arts, in utensils and the like, to absorb the sur- 
plus gold. Exactly this result is evident in the world's withdrawal of 
mint support from silver, but much less rapidly attained. 



330 NATIONAL CURRENCY AND BANKING SYSTEM. 

BIMETALLISM BY CONCERT OF LAWS EXPLAINED. 

Next, imagine all these mints of Europe and the United States to 
grant alike to gold and silver the right of transition into their money 
at the will of the possessor, at one price for gold, equivalent to 23.22 
grains for a dollar; and at one price for silver, equivalent to 371.25 
grains for a dollar, all the coins resulting to be unlimited legal tender 
within the territory of the nation coining them. If gold is produced 
each year more than the arts, industries, and India absorb, the one only 
use for it is employment as money. If there were silver produced each 
year other than is likewise absorbed, and no one doubts it, the only 
use for such surplus silver would be employment as money. Hence, 
for so long as there continued to be any surplus of gold and any sur- 
plus of silver over the said absorption of each, and provided the sur- 
plus of neither metal were sufficient alone for the world's entire need 
of money, for so long the mint price and market price would be one for 
gold, and the mint price and market price would be one for silver. 
Which would mean that the one mint price for gold and the one mint 
price for silver would be the universal market price for each; and 
would mean universal parity of the gold and silver coins at the ratio 
established by these mints. 

This is bimetallism by a concert of laws. It does not seem akin to 
the attempts which our u goldites" would thrust upon us ; as, for instance, 
the setting up of a universal price for each of all commodities, or for 
any one of them so abundant everywhere as iron. 

RESPECTABLE " SILVER LUNATICS." 

Among other " silver lunatics" sanctioning the confidence that 
bimetallism thus attempted could not fail, are the learned professors of 
political economy in the colleges of London, Oxford, Cambridge, and 
Edinburg, and the late De Laveleye with others of the profession on 
the Continent, and a host of men of other callings eminent throughout 
Europe and in the United States. 

STATECRAFT COST THE WORLD BIMETALLISM. 

The aforesaid self-same tutor, to the contrary notwithstanding, the 
abandonment of silver and substitution of gold alone as the primary 
money of unlimited coinage is not the "natural selection of commerce," 
but the ignorant or vicious achievement of statecraft. 

The subjects of England were deprived of their right to convert sil- 
ver into money — temporarily first in 1798 and finally in 1816 — under 
conditions of little public concern, for the reason that irredeemable 
bank notes were England's full substitute for money. Precisely sim- 
ilarly the people of the United States were deprived of their right to 
convert silver into money, a right enjoyed for eighty years, while irre- 
deemable paper of sundry kinds and excessive volume supplanted gold 
and silver money in the United States. 

[Extract of note of Sir David Barbour (British finance secretary to India) October 20, 1887. J 

In no portion of Lord Liverpool's "Treatise on the coins of the realm" is there 
any allusion to : (1) The treasury order of 25th Octoher, 1697; directing that guineas 
should he taken at 22s. each; (2) the council order or' 8th September, 1698, referring 
the question of the high rate of the guinea to the council of trade; (3) the report of 
the council of trade, dated 22d kSeptember, 1698; (4) the resolution of the House of 
Commons on that report; (5) the orders of the treasury to receive the guineas on 
public account at 21s. 6d. each, "and not otherwise." 



NATIONAL CURRENCY AND BANKING SYSTEM. 331 

With the publication of these documents falls Lord Liverpool's statement that 
the English people, by general consent and without any interposition of public 
authority, attached a higher value to the guinea after the great recoinage than the 
market value of gold would, justify; and with the fall of the alleged fact must dis- 
appear the conclusion drawn from it, namely, that with the increase of wealth and 
commerce the English people in 1698 had come to prefer gold to silver. And with 
the disappearance of this hypothesis there disappears the only evidence brought for- 
ward in support of the theory regarding the progress of wealtby countries from 
silver to gold, which Lord Liverpool invented in order to overthrow Locke's opinion 
that "gold is not the money of the world, or measure of commerce, nor fit to be so." 

Lord Liverpool's theory may, of course, be sound, though the facts on which he 
relierl in 1805 were imaginary; on the other hand, it may fairly be said that it was 
the acceptance of the theory on the authority of Lord Liverpool which brought 
about in the nineteenth century that state of affairs which is now held to prove the 
soundness of the theory. * * * 

How Lord Liverpool, or those who acted under his orders, came to overlook the 
existence of the documents which I have quoted, and which at that time would have 
destroyed the basis of his argument, is unaccountable. 

SILVER MONOMETALLISM SAFER THAN GOLD MONOMETALLISM. 

But if any attempt of ours to achieve bimetallism independently is to 
yield silver as our only money, my conviction is the conviction of Robert 
Morris, namely, that silver is preferable to gold if either is to be the 
only current money of the United States. The present Secretary of 
the Treasury of the United States and his associates of the President's 
Cabinet have lately shared a well-advertised effort to heap posthumous 
honors on Eobert Morris. 

THE WORLD'S BLIND EXPERIMENT. 

The repeal of our " Sherman Act," November 1, 1893, following the 
closing of India's mints in June against the further coining of silver on 
private account, severed the last link that coupled silver to its crippled 
right of transition into the money of the Western world. Hence, just 
thirteen months ago, for the first time in history, the commercial world 
began a free concert of absolutely blind experiment in money. 

The latest estimates of Soetbeer, in his almost posthumous publica- 
tion of 1892, accorded little, if any, new gold from the mines each year 
to the world's increase of money. Note, then, that while the popula- 
tion of the United States enlarges at a rate equivalent to adding the 
population of Mexico to ours within seven years, or of adding the popu- 
lation of Canada and all other British possessions in North America 
within three years, this absolutely blind experiment which the United 
States shares demands that whoever would increase the world's aggre- 
gate of money by the equivalent of $1,000 must provide 4.03 pounds 
Troy of gold. 

RESULTS AND PERILS OF GOLD MONOMETALLISM. 

Within the last half of the brief period succeeding 1873, 10 cents a 
pound w«s a sentimental price for cotton and "dollar wheat" was a 
sentimental terra. Becently, 5 cents a pound in towns and 4J cents on 
the plantation, 50 cents in towns and "hog feed" on the farm were 
prices current. The dollar of the United States, half an inch in width 
and a thirty-second thick, is thus become $2 with which to buy the 
sweat and toil and anxieties of a season, at the very head and front of 
prosperity in the United States. While thus the dollar of the United 
States is worth 2 bushels of wheat or 20 pounds of cotton, it gauges the 
prosperity of the United States at 1J cents a year, if invested for the 
period of sixty days in strictly prime commercial paper of New York. 



332 NATIONAL CURRENCY AND BANKING SYSTEM. 

The Hood of our prosperity can not rise higher than its source. The 
font is where the nourished earth yields her own increase and for toil 
returns a hundred-fold. It follows that the conditions contemplated 
must alter presently, or the want of a traveling public and the lack of 
sufficiently liberal movements of freight, at profitable rates, will shrink 
the earnings cf certain of our main trunk lines of railway into a defi- 
ciency of any dividends and, later, into default of interest on their 
bonds. Unless relief of law ensues without delay, choice parcels of 
real estate in New York City will manifest declines in prices, exceed- 
ing 20 per cent, between sales in January, 1893, and December, 1896. 

I am well aware that moderate demand upon liberal supplies of com- 
modities produced at low cost and distributed cheaply will yield low 
prices. On these terms, low prices stimulate moderate demand into a 
liberal demand upon the same supplies, and so tend to recover prices. 
On this basis, low prices of our staple necessities are desirable. In 
such variations of demand relative to such supplies, the producer may 
gather amid the fluctuations of prices, his fair share of the advantages 
conferred on all by his abundance. 

EXPERIENCE SAFER THAN EXPERIMENT. 

But, for the reason that the producer does not share the general 
advantages of the abundance of his supplies, the United States at large 
is sufferer. Relief must be provided, and for that achievement we pro- 
pose that, at all hazards, the United States shall abandon experiment. 

We ask the Congress now sitting to restore our Hamilton- Jefferson 
coinage system, founded with the mint, maintained for eighty years 
without complaint, and overthrown unobserved ly at a time when neither 
gold nor silver was our current money. 

On December G I submitted to the Chamber of Commerce a devel- 
oped plan to restore, or attempt, bimetallism independently, the plan 
providing the modern convenience of paper substitutes for coin and 
providing ample means to stifle any possible money panic arising with 
the enactment. Xo moment could be more propitious than the present 
for any such attempt. Idle accumulations of money in our important 
money centers, like the present, are rare. 

"GrOLDITE" OBJECTION COMMENDS INDEPENDENT BIMETALLISM. 

Our "goldites" antagonize every such proposal with two objections. 
to wit : 

(1) That such legislation is superfluous because " if there is not gold 
enough for all, there is gold enough for us. *- * * We can com- 
mand gold in competition with all nations. * ■* * The United 
States is the largest and best source of supply of the commodities that 
the world most needs — cotton, wheat, provisions, petroleum, and the 
like." 

(2) That to reopen our mints to silver without limit while offering 
coinage to gold without limit, will merely substitute silver monomet- 
allism for gold monometallism in the United States. They mean that 
the proposed enactment will yield silver dollars and paper redeemable 
in silver dollars as our only money, and for the reason that it will ban- 
ish gold from money and expel it from the United States. 

We adopt both of their predictions as the assurance of our safety in 
making the attempt. 

Our ability to command gold in competition with nations striving for 
the meager supply of gold available to money would depend upon the 



NATIONAL CURRENCY AND BANKING SYSTEM. 333 

further sacrifice of our producers ot petroleum, provisions, wheat, cot- 
ton, and the like. Lower and lower prices for these elementary essen- 
tials of our prosperity must pursue a foreign market, and every drain 
of Europe's gold to us as our return for them would further lower 
Europe's prices for all commodities, including any more of these she 
buys. 

By our proposal, on the contrary, the United States provides itself 
the convenient ability to part with gold composedly. Instead of our 
present restriction to gold alone as our tremulous necessity, we propose 
to be able to loan our gold to Europe for our own sakes, selfishly. If, 
as our Mint Director estimates, we have 8600,000,000 of gold and 
$20,000,000 annually produced in excess of our needs in the arts and 
industries, to spare a liberal i>ortiou to Europe, having a convenient 
abundance of domestic money at home, is to loan Europe the vehicle 
with which to carry our prosperity. To increase thereby Europe's 
aggregate of money is to raise normal prices of all commodities in 
Europe, including those for which the United States is Europe's "best 
source of supply." Therefore, diametrically the opposite in achieve- 
ment to what our "goldites" urge, we would enlarge Europe's demand 
for our surplus petroleum, provisions, cotton, and wheat, and upon a 
higher plane of prices for them as she buys. 

SILVER BASIS ONLY TEMPORARY. 

Imagine, as the immediate achievement of our proposed enactment 
silver dollars and paper redeemable in silver dollars to be the only 
money of the United States. The tendency first evident will be its 
restriction upon our importations of European products. This is evi- 
dent under India's silver monometallism in her relation to the outside 
world. But a home experience may be recalled: 

During the period of plethoric State bank notes in the United States, 
when a Sew York merchant had sold to Western and Southern mer- 
chants and bills were due, his collector obtaining local bank notes in a 
Western city would invest in grain or flour, in a Southern city would 
invest in cotton. Shipping the flour and cotton to New York, the sales 
would realize New York bank notes. The operation was thus equiva- 
lent to shipping New York bank notes from the Western or Southern 
cities to New York. The like operation between the United States and 
Europe for our international trade settlements would take the place of 
gold shipments, if gold were hoarded for a high premium, as feared. 
Each such operation would swell the volume of our exports of com- 
modities and benefit, primarily, those for whom we must be most con- 
cerned. 

But the likelihood of any need of such an operation as a part of the 
contemplation of the New York merchant in selling to the West and 
South tended to make him indisposed to sell there. To such extent 
the Southern and Western importations from New York were lessened. 
To the like extent our foreign importations will be lessened under our 
silver-money regime, to the advantage of our home manufacturers as 
against the foreign manufacturers all the time. But in our expe- 
rience, when the New York merchant or manufacturer found his 
home market not broad enough for all his wares, as was frequently the 
case, his surplus was sold West and South at as low price and some- 
times even lower prices than to customers at home. The home price 
being for the greater portion of their merchandise was maintained, at 



334 NATIONAL CURRENCY AND BANKING SYSTEM. 

a sacrifice of profit on the moderate surplus sold elsewhere. Similarly 
Manchester, Lyons, and German manufacturers would experience the 
restriction of our silver money upon them. Our importations of 
Europe's products are to some extent a surplus which she must sell. 
To that extent our importations of foreign products will continue to 
foreign disadvantage and our gain. 

But, because we are Europe's "best source of supply" for our great 
surplus of staple commodities, Europe wil 1 buy of us, even though we 
do not buy of her. As, for instance, we buy from Cuba $75,000,000 
worth of goods a year and sell to Cuba $12,000,000 to $25,000,000 only; 
or as Brazil finds a market here for $70,000,000 of her commodities and 
buys $40,000,000 only of our commodities in return; and finally as 
England, on the contrary, is debtor to the United States for an excess 
of $100,000,000 a year by average in our mutual barter of commodities 
with her. 

OUR SILVER DOLLAR AT A PREMIUM. 

Therefore, with our silver money restriction upon importations setting 
all our spindles turning, employing operatives at full time and these 
operatives made thereby to enlarge our aggregate of home consumers 
of all home products ; with our trade settlements in merchandise serv- 
ing to enlarge the exportations of our spare products; with Europe's 
prices for our products enhanced by our enlargement of Europe's aggre- 
gate of money, our achievement next evident will be a credit balance of 
trade established in Europe for the merchants of the United States. At 
that point exchange on London would sell in Wall street at a dis- 
count. This means a draft on gold payable seven days from date 
offered at a discount in standard silver dollars — the despised, stigma- 
tized 50-cent-silver piece in Wall street, held at a premium over gold in 
London. It means our silver dollars and our gold coin at par; bimetal- 
lism a reality in the United States. Our prosperity as her example, 
and to such a degree at her expense, is likely to enforce the influence 
of Manchester's opinion of English monometallism, the result of which 
may mean the abandonment of England's vicious monetary system soon. 

Europe's only silver is her money. Europe's silver coin is valued from 
3.06 cents to over 13.33 cents per dollar more than ours. Her " silver 
pots and spoons " carry the additional price of labor in them. She will 
ship us gold, therefore, rather than silver, at a minimum preference of 3 
per cent. 

GOLD DESPISED IN 1853. 

Our "goldites" would dismiss all this on the ground of an over- 
abundance of silver. Had the most influential doctrinaire in money in 
Europe been as influential with lawmakers in 1853, as our aforesaid 
tutor was influential with law dictators in 1893, France would have 
closed her mints to gold. Silver monometallism would have been the 
coinage system of the world. Chevalier threatened France with an 
abundance of gold as cheap and overwhelming as iron. Silver is the 
overabundant prediction of our influential doctrinaires. Note, how- 
ever, that $5,000,000 worth of silver bullion is at this moment an over- 
estimate for the world's distributing-markets' supplies of silver. 

INDEPENDENT BIMETALLISM ACHIEVED. 

Finally, our " goldites," and in particular our tutor aforesaid, distort 
history for proof that bimetallism has proved itself a failure; and that 



NATIONAL CURRENCY AND BANKING SYSTEM. 335 

independent bimetallism in the United States during eighty years, 
furnished the experience for the certainty of failure if attempted now. 
The facts, justly handled, refute both assertions flatly. 

The world's great mints were never open to gold and silver without 
limit on a single price among them for each metal. In consequence, 
every seeming divergence between a market price and a mint price for 
either metal was invariably a difference between mint prices. Diver- 
gence between one mint price and another, or other mint prices, has to 
answer in history for every annoying flight of gold or of silver interna- 
tionally. By undervaluing gold relative to silver, compared with the 
French mint's valuation of gold relative to silver, our coinage act of 
1792 caused our merchants to choose gold preferably to silver for their 
foreign settlements, following 1792. By undervaluing silver relative to 
gold, compared with the French mint's relative valuation of the two, 
in our coinage act of 1S34, we made our merchants choose silver prefer- 
ably to gold for foreign settlements thereafter. This divergence 
between mint prices — not divergence between our mint price and any 
market price — cost us gold in one period and cost us silver in the other, 
for the reason only that during most of both periods we were usually 
the debtors in balancing our foreign trade. 

UNITED STATES' INDEPENDENT BIMETALLISM EXPERIENCED. 

Our " goldite" assertion that our said act of 1792 effectually demon- 
etized gold by expelling it from the country, and that our act of 1834 
effectually demonetized silver by expelling it, are alike refuted by 
indisputable records, not made for argument butreporting facts. Thus 
for the twelve years ending 1805, our gold coinage exceeded our silver 
coinage. In the eighteen years following, our gold coinage was half 
our silver coinage. In the nine years ending 1833 our gold coinage was 
one-fourth our silver coinage. And in this same period of " banished 
gold" (?) our trade movements of both metals were usually in one direc- 
tion, usually export in excess of import of both until ending 1823. In 
1824 the net movement of the two 'was import in excess of export. 1825 
refutes this gold banishing theory flatly by a net import of gold and a 
net export of silver. In the five years following, both metals moved to- 
gether again, import in excess of export. In 1831 our u goldites " are 
again refuted flatly by the net import of gold with a net export of sil- 
ver. Thereafter gold and silver both show import in excess of export 
until 1834. 

And in the period following 1834, while "banished silver" (?) is the 
assumption of our " goldites," our silver coinage in the first eight years 
equaled our silver coinage of the eight years prior. Our silver coinage 
in these first eight years exceeded by $3,000,000 our coinage of gold. 
In the second eight years ending 1850 we coined $18,000,000 of silver, 
although we were not producing silver, but were producing gold in 
amounts more vast than the world had known. And in the first four 
years of this " silver banished " ( ?) period our imports of silver exceeded 
our exports of silver by $6,000,000 more than our imports exceeded our 
exports of gold. For the three years ending 1842 the net movement 
of both metals was together, export in excess of import. And nine 
years after this act of 1834 our net movement was import in excess of 
export for gold and silver both. Our " goldites" are refuted notably 
and finally in the fact that prior to our civil war no single important 
movement of the one metal inward and the other metal outward is the 
record of a year. 



336 NATIONAL CURRENCY AND BANKING SYSTEM. 

And note also in this connection and at this particular moment, 
besides the considerable sum in coins of foreign nations, circulating as our 
legal tender until 1857, and besides the unlimited legal tender function 
of half dollars, quarters, and dimes until 1853, and besides the fact that 
80 per cent of all the silver dollars coined were coined after 1834, this 
fact, namely, that redundant banknotes which increased by more than 
$200,000,000 in a period of ten years, were tending all the time to house 
both gold and silver in quiet bank reserves. 

FRANCE A SAFE CRITERION. 

Finally, I regret profoundly that space forbids the mention of inde- 
pendent bimetallism in France and the record of her mint dictation of 
the world's market price for gold and silver during- a period of seventy 
years. On the closing of her mints against silver in 1874 France had 
$900,000,000 of gold and $700,000,000 of silver circulating side by side 
as money. Her population barely exceeded 35,000,000. Our present 
population exceeds 65,000,000, with a promise of exceeding the aggre- 
gate population of Great Britain and France within ten years; and 
our use for gold and silver is for a circulation over a territory seven- 
teen times the area of France. 

I will append a portion of her record and a table for the printed report. 

[Appended as follows.] 
INDEPENDENT BIMETALLISM OF FRANCE. 

By act of her Corps Legislatif, March 28, 1803, " 5 grams of silver, 
nine-tenths fine, constitute the money unit, which retains the name of 
franc." 

The articles prescribed the same fineness for gold coin, and direct the 
coining of 20-franc and 40-franc gold pieces, as well as 5-franc and smaller 
silver pieces. A thousand grams of gold, nine-tenths fine, are to yield 
3,100 francs ; and at the rate of 5 grams to the franc, 1,000 grams of silver 
are to yield 200 francs — the mint price of gold, therefore, being 15.5 times 
the mint price of silver; the 1-franc silver pieces being, as absolutely 
as gold pieces, the unlimited legal-tender coin of France, and they con- 
tinued to be until the founding of the Latin Union in 1865. As already 
noted, the 5-franc silver piece continues to be unlimited legal tender 
in France, and, therefore, the full equivalent of gold in France, although 
no longer coined, and at the relative price for gold of 15.5 times silver 
in the existing coins. 

Appended hereto are tables C D, reporting in dollars the gold and 
silver coinage of France during the seventy years in which her mints 
were open to the unlimited coining- of both gold and silver, at a mod- 
erate charge, into unlimited primary moneys. And there will appear 
the world's production of gold and silver during this period, showing- 
astounding variations in quantities of each produced, and yet as notable 
an approach to fixity in the relative market price of gold and silver 
during the period. 

The coinage of either metal being by the voluntary act of its owner 
all the time, the coinage shows that conversion into French money was 
as good a use as any other to which the owner could put it, or the 
charge for coining would not have been paid. 

In 1806, with the year's production of silver fifty and one- quarter 
times the year's production of gold, we see the coinage of nearly 



NATIONAL CURRENCY AND BANKING SYSTEM. 337 

$200,000 worth more of gold than of silver for the year. In 1818, with 
the year's production of silver forty- six times the production of gold, the 
coinage of gold is seven times the coinage of silver for the year. In 
1852, when the production of silver had fallen to four and one-half times 
the year's production of gold, the coinage of silver is five times the 
coinage of gold for the year. And when in 1800, the gold and silver 
coinage of France was so nearly equal for the year, with the production 
of silver fifty and one-quarter times the year's production of gold, we 
see the average market price of gold at 15.6 times silver, governed, we 
infer, by this effectual mint price of 15.5. In 1818 with the coinage of 
gold seven times the coinage of silver, and the production of silver 
forty-six times the year's production of gold, the world's market price 
averages 15.4, as governed by this mint price, 15.5. 

And notwithstanding the timid scream of Chevalier and others in 
1853 against the further admission of gold into money, gold seeming 
then to threaten to rival iron in its abundance, the mints of France 
continued to accept all tenders of gold and silver, and continued to 
govern the world's market price composedly until 1871, when war 
with Germany interfered. And the result, which finally appeared 
after the cl< siag of her mints in 1874, reported to the Paris conference 
1878, was a st >ck of gold and silver money afloat and in bank in France, 
exceeding $700,000,000 worth of silver money and $900,000,000 worth 
of gold. 

The late De Laveleye, in his " La Mounaie et le Bimteallisme," 1891, 
makes plain that all the divergence between the French mint price and 
the London and Hamburg prices for gold or silver, from time to time 
during the seventy years, was within the aggregate of the costs of a 
shipment of the momentarily cheaper metal to Paris and the charge for 
coining there. And, as observed already, the mints of France had little 
appreciable assistance in their governance of the world's market price 
for gold or silver during any consecutive important period of years. 

Note once more that the population of France did not exceed 
35,000,000 and that their employment of money was within an area of 
203,000 square miles; and that the j)resent population of the United 
States approaches 67,000,000, whose demand for money is for a circula- 
tion over an area of territory exceeding 3,600,000 square miles. And 
recollect that her mint price for silver, the value of silver in her exist- 
ing 5-franc pieces, is at the rate of 3.06 cents on a dollar higher than 
ours. This means that if the mints of the United States were open to 
unlimited coinage for our silver dollars, the French would prefer by over 
3 per cent, to ship their goldrather than their silver money in any bullion 
settlement with us as our debtor in trade. The same preference to ship 
gold rather than their silver money to our equally open mints would 
appear in the case of any of the European nations except England. 
England's preference to ship us gold in trade settlements due us, rather 
than her silver money, would exceed 13 cents on the dollar. 

And note finally as to France, that while her unrestricted mints 
accepted and coined gold and silver without limit during periods when 
the year's production of silver was only four and one-half times the 
year's production of gold, and when the production of silver was fifty 
and one-fourth times the production of gold, governing the price of both 
metals in all markets the while, the year's production of silvei was only 
twenty-three and one-half times the year's production of gold in the 
world in 1892, and is proportionately less just now — twenty-one and 
one-fourth times for 1 893. 

NAT CUR 22 



338 



NATIONAL CURRENCY AND BANKING SYSTEM. 



Table C D. 

The world's production of gold and silver in periods from 1493 to 1890: Soetbeer. 
The same for the calendar year 1891: United States Director of the Mint. 

The proportions of gold and silver relative to the sum of the two. for each period; 
and these proportions according to value, at the French mint valuation of 1 to 15.50. 

The relative weight of the gold and the silver produced in each period; in other 
words, the "ratio of production," i. e., the " intrinsic value" (?) of either measured 
by the other, if production determines value. 

Average "market-price" for each period, i. e., average relative value of gold and 
silver in the open market — London and Hamburgh: Soetbeer, and United States 
Director of the Mint. 

Coinage of France during seventy years to 1873, while her law allowed equally 
unlimited access for gold and silver to her mints on private account, at a valuation 
of 1 to 15.50, for emission in unlimited legal-tender coins. 





Pounds avoirdupois. 


Proportion 


of the total. 


Relative 

production 

gold to 

silver. 

(weight) . 


Eelative 




By weight. 


At i 


T alue. 


market 




Gold. 


Silver. 


value gold 




Gold. 


Silver. 


Gold. 


Silver. 


to silver. 


1493-1520 


357, 280 
378, 048 
299, 552 
300, 960 
324, 720 
374, 880 
365, 200 
385, 880 
407, 440 
473, 660 
564, 080 
839, 520 
1, 082, 840 
911. 020 
782, 760 
391, 116 
251, 790 
312, 752 
446, 358 

1, 204, 698 
2, 172, 665 

2, 266, 638 
2, 036, 353 
2, 110, 900 
1, 877, 425 
1, 881, 726 
1, 694, 258 
1, 863, 700 

415, 710 


2, 895, 200 
4, 762, 560 

10, 968, 320 
13, 178, 000 
18, 431, 600 
18, 607, 600 
17, 318, 400 
16, 117, 200 
14,828,000 
15, 043. 600 
15, 646. 400 

18, 972, 800 

23, 458, 380 
28, 720, 560 
38, 678, 640 

19, 671, 300 

11, 896, 940 
10, 132, 320 
13, 121, 900 
17, 169, 130 

9, 747, 265 
9, 954, 890 
12, 112, 650 
14, 729, 935 
21. 663, 675 

24, 200, 088 
29, 333, 894 
37, 962, 785 

- 9,847,300 


11 

7 
8 
2 
2 
2 
2 
2 
3 
3 
3 

i 

3 
2 
2 
2 
3 
3 
7 

18 

19 

14 

13 

8 

7 

5 

5 

5 


89 
93 
97 
98 
98 
98 
98 
98 
97 
97 
97 
96 
96 
97 
98 
98 
98 
97 
97 
93 
82 
81 
86 
87 
92 
93 
95 
95 
95 


66 
55 
30 
26 
21 
24 
25 
27 
30 
33 
36 
41 
42 
33 
24 
24 
25 
33 
35 
52 
78 
78 
74 
69 
57 
54 
47 
43 
41 


34 

45 
70 
74 
79 
76 
75 
73 
70 
67 
64 
59 
58 
67 
76 
76 
75 
67 
65 
48 
22 
22 
26 
31 
43 
46 
53 
57 
59 


1 to 8. 10 
12.59 
36.61 
43.78 
56.76 
49.63 
47.42 
41.77 
36.39 
31.76 
27.74 
22. 60 
21.66 
31.52 
49.41 
50.29 
47.25 
32.39 
29.40 
14.25 
4.49 
4.39 
5.95 
6.98 
11.54 
13.21 
17.31 
20.37 
23.68 


1 to 10. 5-11. 1 


1521 44 


11.25 


1545 60 


11.30 


1561 80 


11.50 


1581 1600 


12.00 


1601 20 


12.50 


1621-40 


14.00 


1641 60 


14.50 


1661 80 


15.00 


1681 1700 


14.96 


1701 20 . . 


15.21 


1721 40 


15.09 


1741 60 


14.74 


1761 80 


14.72 


1781 1800 


15. 09 


1801 10 l 


15.61 


1811 20 


15.49 


1821 30 


15.76 


183] 40 


15.70 


1841 50 


15.81 


1851-55 


15. 42 


1856 60 


15.30 


1861-65 


15. 41 


1866 70 


15.55 


1871 75 


15.97 


1876 80 


17.89 


1881 85 


18.59 


1886 90 


21.15 


1891 


20.92 







' Mints of France from 1803 to 1873 equally open to gold and silver on the valuation of 1 to 15.50. 
See coinage table annexed. 

Coinage at the mints of France, from 1803 to 1870 in said periods, valuing the franc 
roughly at 5 to the United States dollar. 



Period. 


Gold. 


5 francs 

silver. 


Period. 


Gold. 


5 francs 
silver. 


1803 10 


$33,504,964 

110, 907, 676 

15, 031, 752 

29, 198, 152 

35, 157, 480 


$53, 865, 244 
149. 752, 376 
208, 757, 061 
233, 834, 909 
175, 845, 263 


1851-55 


$310, 766, 198 
505, 494, 552 
179, 491, 304 
227, 777, 130 


$34, 252, 910 


1811 20 


1856-60 


9, 279, 042 


1821 30 . 


1861-65 


194, 216 


1831 40 


1866-70 


51, 954, 842 




Total 






1, 447, 329, 208 


917, 735, 863 









NATIONAL CURRENCY AND BANKING SYSTEM. 



339 



Years of noteworthy coinages, in better evidence of the automatic regulation of the "market 
price" of gold and silver, by the mints of France. 



Year. 


Coinage of the mints of 
France. 


i 
Relative Relative 
production | market 


Gold. 


5 francs 
.silver. 


gold to silver; value gold 
(weight). | to silver. 


1803 

1806 

1807 


$233, 048 
4, 607, 800 
3, 357. 776 


$4, 565. 400 

4, 485, 649 

804, 423 


. 1 to 50. 29 1 to 15. 61 


1811 

1812 


16,282,372 48,947.496 

13,883,190 31.045,613 

12. 148, 216 ; 26, 002, 853 

13,908,914 12,157,747 

2, 560. 424 ! 6, 836, 669 

16,171.404 2,419.939 

5,712,376 3.612,292 

2,475,012 14,659,936 

370,544 j 13,175,982 

23,828 ! 16,780,658 

5,421,912 | 40.7(10,309 

15,854,376 | 16,120.678 

53,941,904 : 11,499,200 j 

2,776.260 '< 13,5)90,200 

101, 743, 432 ! 10, 615 

85, 898, 300 > 4, 861, 173 i 

131, 316. 076 3. 365 




1813 




1814 

1816 

1818 

1820 


1 to 47. 25 J 1 to 15. 49 

i 


1841 

1842 

1845 

1849 

1850 

1851 

1852 

1854 

1855 

1 859 


< 
> 1 to 14. 25 1 to 15. 81 

1 

} 1 to 4.49 1 to 15.42 

J 

[■ 1 to 4.40 ] 1 to 15.30 

1 to 6.00 1 to 15.44 

1 

!• 1 to 6. 98 ! 1 to 15. 55 


1860 

1861 .. 

1865 

1867 

1868 


79. 937, 648 
17, 150, 224 
30, 658, 000 

36, 858, 604 
65, 506. 130 
45, 670, 088 
10, 869, 760 
10, 033, 976 


22, 098 
97, 134 
37, 893 

10. 810. 312 
18, 724, 110 

11. 652. 857 
10, 729, 670 

942, 181 
77, 838 
30, 929, 809 
11,999,202 
15. 000, 000 
10, 532, 263 


1869 


1870 

1871' 

1872 


J 
1 

)■ 1 to 11 54 i 1 to 15 97 


1873 2 


1874 

1875 


4. 863, 940 
46, 982, 400 
35, 298, 632 


1 to 12. 90 1 to 17. 88 


18763 



■In 1871 Franco-Prussian -war was waged, followed by French payments of indemnity to Germany. 

2 In 1873 Germanv's sales of silver began, the United States having demonetized silver by act of 
February 12, 1873. 

3 The full legal-tender silver coinage restricted, by Latin Union agreement of 1874; stopped finally 
by agreement of 1878. 

LATIN MONETARY UNION. 

The Latin Union did not appreciably enlarge the ability of France to 
maintain the parity of her gold and silver coins ; that is, did not add 
to the ability of France to maintain bimetallism independently. The 
coins of all gravitated to France. 

France compacted with Belgium, Italy, Switzerland, and later with 
Greece also, a union whose purpose was u to rid their several people of 
annoying conditions of intercourse and business transactions resulting 
from differing valuations of silver in the subsidiary silver moneys of 
these several States, and with the purpose also to achieve a uniformity 
of weights, measures, and moneys among them." 

This Latin Union was formed December 23, 1865. It provided unlim- 
ited coinage and the unlimited legal-tender function for gold and for 
silver 5-franc pieces, thus exceeding its first aforesaid intent. The 
union was maintained with this unlimited 5-franc piece included until 
1874 (under Germany's sales), and thereafter with a continuance of sub- 
sidiary silver coining under restrictions until 1878. Except that coin- 
ing silver has ceased, the union remains in force effectually. Each State 
made the authorized gold and silver coins of all receivable and payable 
at its public treasury. Each State contracted to redeem its own issues 



340 NATIONAL CURRENCY AND BANKING SYSTEM. 

of subsidiary silver in gold or the 5-frane pieces of the State asking the 
redemption. 

The evidence of the independence of France in her bimetallism, her 
independence of her associates in her maintenance of the parity of 
gold and silver money, is easily made manifest. Much of all their gold 
and silver money gravitated to France, and for the reason that in 
Switzerland the rate of exchange on Paris was so frequently and so 
continuously at a premium; for the reason that the same was painfully 
true of Belgium, as the late De Laveleye records; and for the reason 
that the like was glaringly true of Italy, whose only currency became 
irredeemable paper. 

The population of France barely reached 36,000,000, and the territory 
over which her money circulated was less in area than 202,600 square 
miles, before 1865. The combined territory of Belgium, Italy, Switzer- 
land and Greece and their combined population, were respectively, 
166,500 square miles and 37,500,000 people. The aggregate popula- 
tion of all the Latin- Union States, therefore, did not exceed 73,<»00,00O 
and their combined area was less than 370,000 square miles. 

The present population of the United States approaches 67,000,000 
and promises to exceed 85,000,000 within ten years, whose employment 
for circulating money is over an area of 3,600,000 square miles. 

AUSTRIA'S MONEY. 

As for Austria-Hungary, while at heavy cost incurred in the purchase 
of $100,000,000 of gold at a premium, her stock of that metal may have 
been increased to that extent. Nevertheless, in no right sense of the 
word can it be justly asserted that the monetary system of that Empire 
has been established on a gold basis, even approximately. If her mints 
have been coining gold every week during the last year, so, too, have 
they been coining silver to a material extent, and thus increasing the 
volume of its silver currency as well as that of her gold. As recently 
indeed as the 15th of March, 1894, the monetary situation of the 
Austro-Hungarian Bank was as follows: 

Gold $50, 268, 363, or 39 per cent. 

Silver 79, 261, 480, or 61 per cent. 

Making a total of 129, 529, 813, or 100 per cent. 

Note circulation, $191,228,000 ; that is no less than 6L percent of the 
present stock of specie in the Austro-Hungarian Bank as recently as 
the 15th March, 1894, was of silver. 

Gold commands a premium in Austria thus far still. She does not 
redeem her paper in gold as yet, and will not if she abandons silver. 
Her already burdensome debt of nearly $2,000,000,000 increases almost 
every year. 

AFTER RECESS. 

The Chairman. Does any member of the committee desire to submit 
any further questions to Mr. St. John ? 

Mr. Culberson. I want to ask him a question. In view of present 
conditions, Mr. St. John, what would you have this Congress do? 

Mr. St. John. Shall I offer a bill? Shall I give you a bill to offer in 
the House if you approve it? 

Mr. Culberson. You can answer that question just as you think 
proper. 

The Chairman. Your auswer is that you would like to have the fol- 
lowing bill enacted? 



NATIONAL CURRENCY AND BANKING SYSTEM. 341 

Mr. St. John. That is it. 

Mr. Warner. Let it be read. 

Mr. Culberson. He need not read it; lie can briefly state the effect 
of it. 

Mr. Johnson, of Indiana. Let him briefly explain its contents. 

Mr. St. John. I find a wide difference between explaining a tiling 
and giving the thing itself. 

Mr Culberson. I think yon had better read it. 

Mr. St. John. I should like to read it. 1 think I can take it up by 
paragraphs, which I believe to be the method of legislation. 

The Chairman. Read it and then make your explanation. 

Mr. St. John read his proposed bill as follows : 

A BILL to restore the bimetallic coinage system of the United States, and for other purposes. 

Beit enacted, etc., That upon the terms and conditions and charges prescribed by 
law for the like deposits of gold, owners of silver not too base for the operations of 
the mint may deposit the same, in amounts of not less value than $100, at any mint 
of the United States and receive therefor silver dollars containing each 412^ grains 
Troy of standard silver. 

Sec. 2. The standard silver dollars of the United States are hereby required to be 
received for all dues to the United States and are made receivable and payable for 
all dues and debts, public and private, within the United States. 

Sec. 3. Depositors of gold and depositors of silver as aforesaid, at any mint of the 
United States, shall receive therefor on their request, instead of the coin to which 
they shall be entitled, coin certiticates of the United States which shall be redeemed 
on demand in coin. And depositors of gold coin and of silver coin, other than sub- 
sidiary coins, at the Treasury or any subtreasnry of the United States, in sums of 
not less than $20, may receive the herein-provided coin certificates therefor. And 
no gold certificates and no silver certificates and no Treasury notes authorized by 
act of July 14, 1*90. entitled "An act directing the purchase of silver bullion and. 
the issue of Treasury notes thereon, and for other purposes," shall hereafter be issued. 

Sec. 4. The herein-provided coin certificates shall be redeemed in gold or silver 
■coin, at the convenience of the United States; and the Secretary of the Treasury is 
hereby authorized, in his discretion, to redeem the same on request in gold or silver 
standard bars, at the like convenience of the United States. 

Sec. 5. The Secretary of the Treasury is hereby required to reserve on hand, in 
coin and standard bars, an aggregate sum of gold and silver equal to the aggregate 
sum of the herein-provided coin certiticates outstanding, except as hereinafter pro- 
vided. 

Sec. 6. The Secretary of the Treasury is hereby authorized, in his discretion and 
under regulations which he may prescribe, to direct the Treasurer of the United 
States, from time to time, to receive, at the Treasury or any subtreasnry of the 
United States, interest-bearing bonds of the United States, duly hypothecated to 
the Treasurer, and issue therefor safe amounts of the herein-provided, coin certifi- 
cates as loans at interest. The rate of interest to be required on such loans of coin 
certificates shall be in every case the same as the rate of interest payable by the 
United States on the bonds hypothecated therefor: Provided always, That the 
aggregate sum of coin certificates issued for deposits of interest-bearing bonds'of 
the United States shall not reduce the aggregate sum of coin and standard bars 
reserved for the redemption of coin certificates < elow 60 per cent of the aggregate 
sum of all coin certiticates outstanding. 

Sec 7. The coin certificates provided in this act shall be received for all dues to 
the United States, and shall be receivable and payable for all dues and debts, public 
and private, except where otherwise expressly stimulated in the contract. 

Sec. 8. .Ml authority of law for the transportation of standard silver dollars for 
private account at public expense, in exchange for other lawful money of the United 
States, and all other acts an 1 parts of acts in conflict with this act, are hereby 
repealed, 

Mr. St. John. 1 should like to explain sections six and seven before 
any question is asked me, while I think of what 1 want to say. 

The suggestion to make these coin certificates a legal tender with the 
limit proposed, silver dollars being made as unlimited legal tender as 
gold coin, is in order that the New York Cleanup House banks shall 
accept these coin certiticates as it does the Treasury notes of 1890, which 
are exactly thus limited tender, in settlements of daily balances. 



342 NATIONAL CURRENCY AND BANKING SYSTEM. 

The proposed section 6 is an emergency issue, and would be availed 
of in real emergencies only, for two reasons: 

(1) Because owners of bonds would not accept long-time loans at a 
cost ot all the interest on their investment; and 

(2) Borrowers of 4 per cent and 5 per cent United States bonds, 
hired to hypothecate for such loans, would only appear when a real 
emergency made high rates for money in the open market. 

If a money-market panic threatened the proposed enactment with a 
sharp contraction of our aggregate of money, this provision (section 6) 
would empower the Secretary of the Treasury to issue over $200,000,000 
of United States coin certificates against silver coin and bullion already 
in the Treasury, and loan them at 4 per cent and 5 per cent per annum 
against United States interest-bearing bonds. This issue would reduce 
the aggregate reserve against silver certificates and Treasury notes to 
about 02 per cent. 

If lack of engraved coin certificates threaten the Secretary's imme- 
diate convenience, I suggest that boldness equaling the recent issuing 
of interest-bearing bonds will momentarily substitute silver certifi- 
cates, with some distinguishing stamp on them, therefor. 

The bill merely proposes in effect: u That the Congress restore imme- 
diately the coinage system of the United States founded with the mint 
in 1792, maintained for eighty years thereafter and overthrown, unob- 
servedly, when neither gold nor silver was* our current money. It pro- 
vides the modern convenience of paper substitute for coin, on the choice 
of the depositors of gold and of silver at the mint, one and the same 
coin certificate redeemable on demand in coin; and redeems these coin 
certificates in gold or silver, at the option and convenience of the United 
States. It provides an ' emergency issue ' of these coin certificates, addi- 
tionally, with 'elasticity' unquestionable and with redemptions on 
demand assured, and the means in the Secretary's hands to stifle any 
panic in Wall street instanter." 

Mr. Brosius. What limitation would you put upon the legal- tender 
quality of the certificates you have descirbed"? 

Mr. St. John. The coin certificates? 

Mr. Brosius. Yes. 

Mr. St. John. Only the limitation that you and I might be able to 
contract against receiving them, if we desire, exactly as the Treasury 
note of 1890 is limited in its legal-tender function, and exactly as the 
silver dollar is now limited. But I propose to remove the limitation 
from the silver dollar. Let our gold and silver coins stand alike before 
the law, as in France; and then the United States Supreme Court will 
not permit the enforcement of contracts in gold coin only. Such dis- 
crimination then would be " against good public policy" to enforce. 

Mr. Brosius. You have spoken of the limited legal- tender quality y 
but you have not yet stated what the limit was. 

Mr. St. John. The limit only that you would have a right to contract 
, against them, as you have in the Treasury note of 1890. 

Mr. Ellis. I came into the room after you had read part of your bill. 
I will ask you whether your bill provides for the repeal of the law of 1873 
making the gold dollar the unit of value? 

Mr. St. John. You gentlemen are lawyers, and I need not give you 
the law. But as I understand statute law to-day, each new statute sup- 
ersedes any prior act that conflicts with it. The provisions of my pro- 
posed bill conflict with that law of 1873, and my final clause provides 
that all acts and parts of acts in conflict herewith are hereby repealed. 

Mr. Ellis. Bo you propose to establish the silver dollar as the unit 
of value — if that is a good term! 



NATIONAL CURRENCY AND BANKING SYSTEM. 343 

Mr. St. John. I do not think it is a good term. I presume you mean 
the unit of account. 

Mr. Ellis. The unit of account! 

Mr. St. John. No, sir; my bill recognizes the dollar of the United 
States as the unit of account; it does not distinguish between the 
gold dollar and the silver dollar. 

Mr. Ellis. Does it provide any ratio at which the metals shall be 
coined — if that is a good term 1 ? 

Mr. St. John. You did not hear the bill read? 

Mr. Ellis. No, sir. 

Mr. St. John. The first portion is explicit on that point. It simply 
provides that the silver dollar now existing shall be coinable, without 
limit in amount, on producing the bullion for it, and on the same terms 
as are now prescribed for gold. 

Mr. Ellis. Would your theory put this country on a silver basis'? 

Mr. St. John. Momentarily, it might — I think it would, immediately. 

Mr. Ellis. How long would that condition, in vour judgment, pre- 
vail? 

Mr. St. John. I read you a paper this morning in which I tried to 
answer that. I shall have to refer you to that for my complete answer. 
I would not predict the achievement of actual bimetallism in the United 
States under the bill earlier than two years ; that is, two years at the 
outside. I should expect it earlier, if conditions now existing abroad, 
existing outside of France, prevail; I would expect it to be accomplished 
within one year. There is uo business prosperity anywhere in the world 
to-day, outside of France. 

Mr. Ellis. To what do you attribute the prosperity of France ? 

Mr. St. John. To an abundance of good, sound money; that is, pri- 
mary money that can not be refused, money that the financiers of that 
country handle on a scientific basis, France being the only nation of 
financiers. 

Mr. Ellis. I was criticised the other day for asking some witness 
something about primary money. I was asked what I meant by pri- 
mary money. Now, I wish you would give a definition of that term. 

Mr. St. John. Primus, I think, means first, or nothing ahead of it. 
It is absolute money — unconditional, primary money. Secondary 
money is the greenback which, although a limited legal tender, is a 
promise of money. G-old coin does not promise any redemption. It is 
not the stamp on the coin that makes it money. It is the law behind 
it. You can not refuse it, and the condition all over the world to-day 
is, practically, that all you have to do is to present gold bullion, and 
lawful money is returned to you for it under the mint laws of all the 
commercial nations. 

Mr. Ellis. You have examined the Baltimore plan and the plan sub- 
mitted by the Secretary of the Treasury, I presume % 

Mr. St. John. I have. 

Mr. Ellis. If either one of those plans were adopted, state whether 
or not, in your opinion, the volume of paper money would be increased 
or decreased. 

Mr. St. John. I do not look upon a bank note as money, but a promise 
of money, and therefore I do not quite get your question. 

Mr. Ellis. 1 will ask it in this form: If either of those plans were 
adopted would the volume of paper currency be increased or decreased 1 ? 

Mr. St. John. You mean now, money and substitutes for money. 
Will you confine me to one plan, because I Avould treat these plans on 
different bases. 

Mr. Ellis. Answer in your own way. 



344 NATIONAL CURRENCY AND BANKING SYSTEM 

Mr. St. John. Suppose you confine me to one; otherwise you give 
me large ground to cover. 

Mr. Ellis. Then I will confine you first to paper currency. Would 
the volume of paper currency be increased? 

Mr. St. John. To which of the bills shall I confine myself? 

Mr. Ellis. We have the Baltimore plan, already spoken of, and the 
other plan submitted by the Secretary of the Treasury. 

Mr. St. John. Confining myself for the time to the last named, if the 
Secretary's bill were enacted as introduced it would fall absolutely flat; 
not a note would be taken out under it. 

Mr. Ellis. Why? 

Mr. St. John. For the reason that Mr. Williams and several other 
gentlemen have given you, as I understand their testimony. 

Mr. Ellis. You seem to have overlooked the lact that there is a 
mandatory provision in one of these plans. 

Mr. St. John. On the contrary, that panic-assuring provision will be 
resisted and the panic ensue concurrently. All I have to do under the 
statutes of New York is to make application one day and the next day 
I can become a State bank. We are not obliged to be a national bank, 
although we prefer it. We will not continue under national charter 
and guarantee the liabilities of other banks. We are more experienced 
than to do that. 

Mr. Ellis. I wish you would follow the bill in detail as far as you 
like. 

Mr. St. John. I could follow it to criticise it. 

Mr. Ellis. I should like you to do it. 

The Chairman. W T ould the currency issued under that be safe? 

Mr. St. John. There would not be any currency issued under it as 
it now stands, but there would be the greatest panic that this country 
has ever seen. 

The Chairman. What would cause the panic if the banks did not 
issue currency ? 

Mr. St. John. The fact that conservative banks would abandon 
their national charters rather than guarantee the liabilities of others, 
and such abandonment would throw upon an unresponsive market 
$200,000,000 worth of United States bonds, of which $21,000,000 are 2 
per cents, not now salable at par. These withdrawals of bonds by 
national banks would mean surrenders of the circulation secured by 
them. That would mean, in the aggregate, a " contraction of the cur- 
rency" of the United States by $180,000,000 in the period between the 
enactment of the law and July, 1895. This burdening of the bond mar- 
ket, under antagonism of the national banks, would make it impossi- 
ble for the Treasury to sell its next $50,000,000 of bonds to recoup its 
gold reserve, and chaos would reign supreme. 

In February of 1881, when I had been only one month in the Mer- 
cantile National Bank, and without previous bank experience, there 
came out in the New York papers a mistaken notion that between 
January and July the national banks must replace all the bonds they 
possessed by the substitution of new 3 per cents. The President was 
induced to veto the bill by the panic occasioned by an $18,000,000 con- 
traction of the currency which ensued. There are only three concerns 
in New York City buying and selling Government bonds. They make 
the market, practically, and sometimes are quite arbitrary about it. 
There is sometimes a difference of 1 per cent between their buying and 
selling prices for United States bonds, the best of securities in the 
world. Therefore it was thought by the national banks then that they 
had better sell promptly. Hence the contraction and the panic. If 



NATIONAL CURRENCY AND BANKING SYSTEM. 345 

section 7 of the Secretary's bill is passed we would have to find a mar- 
ket for $200,000,000 United States bonds between the date of its 
passage and July next. We would prefer to sell ours forthwith. 

The national-bank note is guaranteed by the United States, for the 
reason that the national bank, as a creature of the United States, is an 
arm of the Government. The national banks, with their note-issue 
system, were created as a means of providing- a ready market for United 
States bonds by a method yielding acceptable substitutes in moderate 
amount for money, and for no other reason. That means of providing 
such market ought to be preserved by the United States. If the United 
States desired the Mercantile National Bank of New York to take 
$900,000 of their 3 per cent bonds at par to day, or their 5 per cent 
bonds on a 3 per cent basis, and did not exact gold for it, but would 
let us pay for tne bonds with our notes which the Comptroller would 
issue on them, we would do so promptly. We did not buy any of 
the first or second $50,000,000 of United States bonds lately issued, 
because I did not believe any existing law provided for the issue. I 
think necessity rather exceeded the law, as it usually does, and I find 
no fault. There was nothing else to do under the circumstances. The 
circumstances could have been prohibited, however. We made a direct 
contribution of $500,000 of gold coin to the Treasury reserve "in 
exchange for any lawful money ; " but the newspapers were not told of it. 

A copy of the Secretary's bill has been handed me. Suppose I take 
it up by paragraphs. I shall not consume much time. 

Mr. Ellis. Consume all the time that is necessary. 

Mr. St. John. In the first place, under this proposed bill of the Sec- 
retary's a sum of " greenbacks" or Treasury notes of 1890 are to be 
impounded. This effects an immediate contraction of the currency. 
To procure and deposit these notes you contract the currency existing. 
There is a period of time, involving from fifteen to forty days, before a 
national bank can get its notes from the Comptroller, under existing 
law, put them into shape, and get them into circulation. It is not always 
easy to float national-bank notes. We took out $800,000 of national- 
bank notes some three or four years ago and it took us nearly two 
months to get them out. They were nothing but chips — I do not mean 
poker chins, but chips of wood — until we could get them into cii dila- 
tion. This element of temporary contraction is an element of danger 
in the Secretary's bill. 

Now we come to the provision that the notes are a first lien upon all the 
assets of the association issuing the same. That might be open to this 
question: Whether they are a lien also on the stockholders' additional 
liability. That liability of shareholders is perhaps not an asset of the 
bank. 

The Secretary's third section provides: "That in lieu of all existing 
taxes" one-fourth of 1 per cent per annum is payable as a duty for each 
half year upon the average amount of the bank notes in circulation. 
That is to pay for the Government's interest in tiie matter. But there 
are two quarters to be paid under section 5, as a means of establishing 
a safety fund. That means one half of 1 per cent per annum. 

The Chairman. Until the 5 per cent is readied. 

Mr. St. John. That means a period of ten years before the safety 
fund is established. What would happen to your banks during that 
ten years preceding the establishment of a safety fund? In the mean- 
time there is only dubious safety. That is logical, if it is not true; and 
I think it is true. 

There is particularly no safety for the good banks that would be 
liable to demands upon them, during ten years, to pay failed banks' 



346 NATIONAL CURRENCY AND BANKING SYSTEM. 

notes and take tbe chance of any assets of these failed banks to reim- 
burse them. At least the Osawatomie People's National Bank can 
not have this right to jeopardize the Mercantile National Bank of the 
city of New York if we have to surrender our national charter to pre- 
vent it. 

Each association hereafter organized and each association applying for additional 
circulation shall pay its pro rata share into the said fund before receiving notes. 

I suppose that means that if 5 per cent has been contributed by 
banks already issuing, any new bank must contribute 5 per cent as a 
starter. That is another deterrent; but it ought to be required if the 
rest of the bill is enacted, of course. 

The underlying proposal pertaining to all these bills, the Secretary's 
indirectly and all, under the recommendations of Mr. Horace White 
and associates, whom you have heard, is the retirement of the green- 
backs and Treasury notes; and Mr. White wants the silver dollars 
and certificates retired also. The proposal amounts to a demand that 
the United States abandon a profit to the people at large and confer 
a profit on the banks instead. 

Mr. Cobb, of Alabama. Will yon please explain how it is, if this bill 
becomes a law, that the United States would guarantee a profit to the 
national banks'? 

Mr. St. John. I do not say that. I have said that the Secretary's 
bill would fall flat, and if section 7 is enacted will create a panic. I 
say the underlying demand of the gentlemen who have been here to 
testify in behalf of any of these bills is that the greenbacks shall be 
retired. That is basal in their demands. Profit to the issuing banks 
is the first requisite of any creation of bank notes. 

Mr. Cobb, of Alabama. Are you opposed to the retirement of green- 
backs? If so, state why; and if you are not, state why not. 

Mr. St. John. I am opposed to asking any sacrifice of the people at 
large in order to provide profit to banks. I do not dare ask any such thing. 
I never did and I never will. I would not so sacrifice the popularity 
that the national banks of the United States have legitimately earned. 
The great popularity to which they are entitled is being sacrificed by 
well-meaning doctrinaires, outsiders, who know little about banking. 
Think of it,"the United States issues $100,000,000 of bonds, on which 
interest is to be paid for ten years at 5 per cent per annum. At the 
same time it is proposed that 1316,000,000 greenbacks, a debt which 
does not bear interest, and therefore is saving (at 5 per cent per annum) 
$17,300,000 a year to the people at large, shall be retired. More inter- 
est-bearing debt to issue to retire them. And as a feature of the pro- 
posal is that bank notes, yielding profit to banks as the first essential 
of their existence, shall supersede them! It is preposterous! 

Mr. Johnson, of Indiana. What is your opinion of section 10 of the 
Carlisle bill f 

Mr. St. John. My opinion of that is just what I said when I came here, 
that it is absolutely impossible for the banks of the United States to 
redeem a liberal issue of bank notes in gold. The possibility does not 
exist. 

The Chairman. Section 10 is in regard to State banks. 

Mr. Johnson, of Indiana. Section 10 is the one which provides for 
the issue by State banks, under certain conditions therein imposed. 

The Chairman. Take our printed copy of the bill. That is the only 
bill to which we refer. 

Mr. St. John. Section 10 provides, I see, that the use of circulat- 
ing notes issued by a banking corporation duly organized under the 



NATIONAL CURRENCY AND BANKING SYSTEM. 347 

laws of any State, and which transacts no other than a banking busi- 
ness, shall be exempt from taxation under the laws of the United States 
under certain conditions. That section is the State-bank feature. 
What I would have to say about that is two things: First of all, the 
Secretary introduces a bill based on his timidity as to a sufficient gold 
reserve. He says that he is asked to pay gold for greenbacks and 
Treasury notes, and he wants to put that burden upon the banks. He 
proposes to allow a State bank to issue notes if the State bank will 
first lodge with some State officer a certain number of dollars' worth of 
greenbacks or Treasury notes. He does not provide that the State 
officer must withhold these greenbacks or Treasury notes from circula- 
ting, and is without any right in the Constitution of the United States 
to compel such State officer to do so. He is simply furnishing a means of 
issuing State-bank notes and leaving those greenbacks or Treasury 
notes in circulation also. He is not reducing by a dollar the demand 
on the Treasury for greenback and Treasury-note redemptions. 

Mr. Johnson, of Indiana. You. said there were two reasons; you 
have given one. 

Mr. St. John. I meant to couple that with the fact that I think that 
the national-bank-note system ought to be preserved, so far as it is to 
the public interest to preserve it, and so far as it is to the public 
interest to create or preserve any banks of issue. The national-bank- 
note system of note issue ought to be preserved as the means of assur- 
ing market for United States bonds when the Government needs to 
issue interest-bearing bonds. 

Mr. Johnson, of Indiana. You contemplate, of course, the continued 
use of paper money? 

Mr. St. John. I propose to create coin certificates of the United 
States secured by a reserve of 100 per cent in coin and standard bars 
in lieu of the Treasury notes of 1890 and other paper, excepting the 
greenbacks and excepting national-bank notes, as now issued, also. The 
greenback is a note that did not promise anything but money; it did 
not say what money, and it did not promise coin until by act of 1874, 
which said it should be paid in coin. That act says gold or silver, 
explicitly. 

Mr. Johnson, of Indiana. What is your opinion as to the relative 
merits of a system of paper money under direct Federal control, as 
compared with a system of paper money under the control of the vari- 
ous States'? 

Mr. St. John. With no Federal control attempted? 

Mr. Johnson, of Indiana. Yes. 

Mr. St. John. Well, we have had a history in this country that was 
exceedinly expensive; very costly. Uncertainty caused a difference in 
exchange between cities, which varied from a tenth of 1 per cent to 3 
per cent quite commonly, and sometimes exceeded 5 per cent. That 
difference in exchange was the price of that system to the producing 
sections, whose products were exchanged by means of State-bank notes 
for products hailing from the monej^ centers. 

Mr. Johnson, of Indiana. Do you believe that conditions have so 
changed in the interval that there is now no danger of the evils from 
which we then suffered under the old State-bank system l} . 

Mr. St. John. Has anybody furnished any fact to verify that state- 
ments I do not admit it. 

Mr. Johnson, of Indiana. I want to develop your views. 

Mr. St. John. I am willing to be converted by facts, but I have not 
seen any facts to warrant even a suspicion of such a change. 

Mr. Johnson, of Indiana. If we are to have a system of circulating 



348 NATIONAL CURRENCY AND BANKING SYSTEM. 

notes issued by banks, which system do you think is preferable and 
would best subserve public interest — a system under exclusive Federal 
control, or a system partially under Federal control and partially under 
the control of the states"? 

Mr. St. John. I do not believe it would be possible to maintain a sys- 
tem under two controls under the Constitution of the United States as 
I read it. 

Mr. Johnson, of Indiana. But let us assume the constitutionality. 

Mr. St. John. I can not assume ^it, because I do not believe it is 
possible. I think the Constitution would interfere. I think that is 
an absurdity, and I do not think you want to ask me to assume an 
absurdity. 

Mr. Johnson, of Indiana. But as there might be a difference of 
opinion on the legal aspect of the question, assume that it is possible 
from a legal standpoint; as a practical business man what would you 
say as to the desirability? 

Mr. St. John. I have had no experience to justify any opinion 
whatever, and I do not think anybody else has. ! do not respect 
opinions that are based on imagination only. I will not ask you to 
do so. 

Mr. Johnson, of Indiana. Are the functions of a bank, so far as its 
discounts and deposits are concerned, so entirely separable from its 
functions as a bank of issue of circulating notes that, in your opinion, 
as a practical business man, and leaving out of view the constitutional 
aspect of the question, that the discount and deposit functions could 
be subjected to one jurisdiction and the note-issuing functions to 
another jurisdiction ? 

Mr. St. John. There is nothing but imagination that could answer 
that question. I do not know. I have no suspicion that such a dis- 
junctive conjunction could survive the first strain upon the money 
market. 

Mr. Johnson, of Indiana. The witness who was on the stand just 
before you came was asked by the gentleman from Kentucky (Mr. Ellis) 
to explain why it was that no money could be borrowed on short time 
by the merchant in New York on personal security at a low rate of 
interest, whereas a merchant in a city like Louisville, Ky., who was 
unquestionably solvent, could not obtain money from the banks there on 
the same time at so low a rate of interest. Can you give us a solution of 
that problem 1 ? 

Mr. St. John. I can mention one of the causes. 

Mr. Johnson, of Indiana. What is your explanation ? Does that 
condition exist? 

Mr. St. John. It does. 

Mr. Johnson, of Indiana. Why? 

Mr. St. John. I will give you one reason. There are many, doubt- 
less, but one is this: The statutes of the United States establish a 
requirement of reserves of money in national banks In the country 
banks — banks out of the main cities — it is 15 per cent of their deposits; 
in the larger cities it is 25 per cent of their deposits. Banks of those 
cities of the 25 per cent class which are not designated " reserve cities 17 
and banks of the cities that are in the 15 per cent class are allowed by 
law to carry a portion of what is called their "cash reserve" on cash 
deposit in the city of New York. Thus, in law, a deposit in New York 
subject to check is a portion of the cash reserve required of the Ossa- 
watomie National Bank. The money is in the city of New York and is 
employed in New York. The banks in Isew York, competing with each 



NATIONAL CURRENCY AND BANKING SYSTEM. 349 

other, invite such deposits, sometimes at a small rate of interest. The 
result is an accumulation of money in the banks of New York. One of 
the effects is a competition to employ it safely. There are too many 
lenders at times and low rates. Great demoralization in the money 
market in New York ensues. The effect has been evident in the condi- 
tion for a year past uutil the last bond issue reduced funds, the prime 
New York borrower being able to get money on his own terms. 

Mr. Johnson, of Indiana, There are accumulations of money in 
New York? 

Mr. St. John. There are, frequently. 

Mr. Johnson, of Indiana. That is your answer boiled down? 

Mr. St. John. Yes, with this addition: The peril of these accumu- 
lations is what your section appreciates in your disadvantage in rates r 
which you ask me to explain. New York banks lend the money on an 
average calculation of demands upon them. If they lend too mucli of 
the money intrusted to them they are in danger. Hence, when their 
habit of thought is accustomed to the accumulation they dread the 
first evidence of its diminishing. To forestall this dread they lend to 
New York merchants of certainty to pay and whose paper "will sell 
everywhere, in preference to lending to Louisville, when just as certain 
of payment, but not certain that Louisville paper will sell if money is 
drawn and must be provided. 

Mr. Johnson, of Indiana, Is that in your opinion sufficient to explain 
this discrepancy in the rates of interest between Louisville and New 
York? 

Mr. St. John. Here is another thing: The Mercantile National 
Bank of New York has to-day some $10,000,000 to $11,000,000 of other 
people's money on deposit, and some $5,000,000 of idle money in our 
vaults, part of which latter ought to be earning interest. But the 
times are uncertain; there is a threatened alarm on the gold shipment 
question, and there are other disturbing elements in prospect, so that 
we do not dare lend as closely as we would like. Under present con- 
ditions I would rather buy a prime New York merchant's note for 
$100,000 at a discount of 3 per cent per annum than Louisville paper 
at G per cent per annum, four months to run. 

Mr. Johnson, of Indiana. If you will be kind enough to make your 
answers a little more concise it will perhaps better serve our purpose. 

Mr. St. John, If that is not pertinent it may be stricken oat. It 
is pertinent to remind ourselves that as communities grow in wealth 
they keep more and more of their money at home. Every govern- 
ment's bonds that sell at par and over are practically all at home. 

Mr. Johnson, of Indiana, You feel certain that the reason why 
you could loan money at a low rate of interest is because of the superior 
character of the paper? 

Mr. St. John. In times like these there is no security except in the 
most strictly prime paper known to be such, and available to sell as 
such. 

Mr. Johnson, of Indiana. I am assuming that the primest security 
is offered in Louisville. 

Mr. St. John. I know banks in Louisville that are prime, and I know 
one that can get $200,000 from me whenever it wants it. They can get 
money from me at 4 per cent and lend it at G. 

Mr. Johnson, of Indiana, Do you think it is the selfishness of the 
banks that causes this difference in the rate of interest? 

Mr. St. John. No, sir; it is due to timidity, in view of the general 
lack of prosperity in the producing sections, or belief that producers 
are suffering generally. 



350 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mi*. Johnson, of Indiana. Does not that timidity obtain in New York 
as well as in Louisville? 

Mr. St. John. It does indeed. 

Mr. Johnson, of Iudiana. Then how would that effect the difference 
in interest complained of? 

Mr. St. John. It is not quite the same in New York. In New York 
we have a very large clientage of men who are worth a million dollars 
or more each and known to be. That condition does not obtain in the 
smaller cities. I can take paper of Louisville merchants with entire 
confidence, because I know them. But I can not be certain of getting 
cash for it if my depositors draw on me heavily. 

Mr. Johnson, of Indiana. Are there not men of unquestioned finan- 
cial standing in Louisville as well as in New York? How could that 
create the difference? 

Mr. St. John. I answered before that there are accumulations in New 
York such as are not in Louisville, those accumulations being partly 
the result of statute law. I explained our competition in New York as 
lenders, and our required caution as to amount to lend. 

Mr. Johnson, of Indiana. But I understood that there were other 
reasons, and it is with respect to the additional reasons that I was 
inquiring. Something has also been said in the course of the exami- 
nations we have had here about the scarcity of money in the agri- 
cultural sections of the country at what is known as the crop-moving 
time, and about the high rate of interest charged for money with 
which to move the crops. Can you explain the reason for the scarcity 
of the money and why it is that it costs the people living in those sec- 
tions so much to get it? Describe the process whereby money is made 
high to them in order to move their crops. 

Mr. St. John. Primarily and underlying the whole thing is the fact 
that the aggregate sum of money in the United States is not sufficient. 
If there were a general business revival in the United States we would 
have a painfully stringent money market within ninety days. That is 
one answer to the question. 

Mr. Johnson, of Indiana. Is it not a fact that at the very time that 
these people in the agricultural sections are complaining about the 
scarcity of nioney there are large quantities of money lying idle and con- 
gested in the money centers? 

Mr. St. John. Undoubtedly so, as I thought I had explained. 

Mr. Johnson, of Indiana. Then would you say that the reason why 
this complaint exists is that there is not sufficient money for the pur- 
pose of moving the crops ? 

Mr. St. John. I would, undoubtedly. When I find an accumulation 
in every bank of Europe greater this year than for years past, I know 
there is a reason for it. The increase of the aggregate money of the 
world is stopped, except as one can provide 4.03 pounds of gold when 
he wants to add a thousand dollars to it. Distrust is the concomitant 
and distress the achievement. 

Mr. Johnson, of Indiana. Is the reason why money can not be had 
in agricultural districts in sufficient quantities to enable the crops to be 
moved, because of the fear among lenders that there is no security for 
the money? 

Mr. St. John. It is one and a sufficient reason for bank caution. 
The people who are making these complaints, and justly too, I think, 
are not prosperous. They are mortgaged to death to their factors and 
stores and country merchants. What they mortgage their homes and 
crops for is dollars. If their product will not yield dollars they can 



NATIONAL CURRENCY AND BANKING SYSTEM. 351 

not pay their debts. Cheap overcoats do not concern the plauter and 
farmer unless dollars are the outcome of their crops. 

I have said that the aggregate of all our money is our measure of all 
values. It follows that the aggregate of money must increase with the 
aggregate of the commodity considered if the price of that commodity 
is to remain unchanged. Large volume of wheat, low price for it; 
large volume of dollars, low value of dollars. I don't mean interest 
value of dollars. I mean relative value of wheat and dollars. High 
prices for flour and high rates of interest are found together. We see 
this conjunction in mining districts. To be brief, it is the fact that the 
world's growing abundance of the necessaries and luxuries is surpass- 
ing the world's sufficiency of money. Tbe prime sufferer is the pro- 
ducer of the abundance. Reflectively and painfully all elements suffer 
on account of him. 

When crops move from the producing sections they move East and 
North and out of the country. The Western or Southern draft follows 
the merchandise to New lork, is cashed in New York, and the money 
for which the merchandise sells is there. Now, to get the actual money 
to the West or South it lias to be shipped there. That process of 
shipping is expensive in two ways. First, the express charges. Second, 
the alarm it nearly always causes the money-center banks who are 
asked to ship; it raises their rates of interest. 

Mr. Johnson, of Indiana. That is what I am trying to get at. The 
items that go to form the dearness of currency at the time it reaches 
the crop moving section is due to what, do you say? 

Mr. St. John. It is because it has to be shipped from the money cen- 
ters to the crop-producing localities. That is a process demanding 
money. The insufficiency of our aggregate of money in the United 
States appears at such times glaringly to the unprejudiced. When 
crops move from the producer he wants actual money. Checks, drafts, 
and like credit substitutes for money do not content him. Money is 
the measure of his sales. 

Mr. Johnson, of Indiana. Let us stick to the question. You have 
stated one reason why money is so scarce and high, and that is because 
of the cost of transportation. You stated that there was another 
reason. What is that? 

Mr. St. John. I thought I said that the cost of transportation was 
one element. I meant to say that the timidity element mentioned is 
the chief cause. 

Mr. Johnson, of Indiana. The feeling that the security offered for the 
money will not be sufficient if the people are not sufficiently prosperous ? 

Mr. St. John. Only partly that. More importantly, the money-cen- 
ter banks are timid at once upon every large drain upon their cash 
resources. 

Mr. Johnson, of Indiana. Are they afraid to realize on idle money 
with which the money centers are loaded? 

Mr. St. John. I would rather say cautious. If cash reserves run 
down, we become a little more conservative of what remains. 

Mr. Johnson, of Indiana, Can you think of any other reason? 

Mr. St. John. I do not think of any other reason. I am sorry to be 
so verbose in these. I was not expecting these inquiries. . 

Mr. Hauoen. Would not that timidity that you refer to, and the 
demand for money, exist in New York as well as elsewhere? 

Mr. St. John. It always does. If checks are drawn upon a bank 
the money must be there to meet them, or must be raised instanter. 



352 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Hauoen. What rate of interest did you charge during the 
panic a year ago ? 

Mr. St. John. The Mercantile National Bank of New York never 
exacts more than Gper cent from its dealers, under the present adminis- 
tration of thirteen years. There was one instance during that panic of 
1893 in which we did exact 8 per cent, I think. We had been badly 
abused, and might have exacted 20 per cent if we had wanted to. 

Mr. Hauoen. What was the current rate about! 

Mr. St. John. There was no current rate. Lenders got anything 
they chose to exact. 

Mr. Hauoen. Jt was much higher than it is now? 

Mr. St. John. Yes ; brokers paid on prime security three-fourths per 
cent per day and 6 per cent per annum; 270 per cent per annum for 
some days. 

Mr. Johnson, of Indiana. Can you give us, in a succinct form, your 
explanation as to how there can be a remedy for the high price and 
scarcity of money in the agricultural districts in crop-moving times'? 

Mr. St. John. If there were a larger aggregate of money in the 
United States it could circulate over our vast territory without occa- 
sioning alarm. If I knew that the world believed that Louisville is 
absolutely prosperous, 1 would like to lend much of my money in Louis- 
ville. I would do so with the same certainty that I have mentioned as 
pertaining to New York. I merely take Louisville as the illustration, 
because you mention it. 

Mr. Johnson, of Indiana. Take any other prosperous Western city 
where rates are higher on good security than with you. 

Mr. St. John. I regard Louisville as one of the most prosperous 
cities of the West and South. I did not mean to reflect on Louisville. 
But there is no general prosperity in the United States to-day. That is 
what I meant to say. 

Mr. Johnson, of Indiana. The rates of interest throughout New Eng- 
land have been a good deal lesy than in other sections of the country, 
have they not? 

Mr. St. John. Yes. 

Mr. Cobb, of Alabama. Is it not a fact that it is because of this vast 
accumulation of money in New York, and a number of other cities, that 
the country is not generally prosperous? 

Mr. St. John. These accumulations are not the cause; they are one 
evidence of the lack of prosperity. 

Mr. Cobb, of Alabama. Have you any opinion as to what causes this 
want of general prosperity, whether it is from natural conditions, or 
from the result of operations of law, or what is your idea! 

Mr. St. John. My opinion is that the aggregate sum of money in the 
United States is insufficient to establish confidence in its ability to meet 
the demands upon it under ordinary prosperity. Also, our money has 
a scarcity value proportionate to our abundance of the commodities 
which it values. " Prices," or dollar valuation of commodities, is ruin- 
ous to those who provide prosperity when we have any. 

Mr. Cobb, of Alabama. What remedy can you suggest? 

Mr. St. John. Enlarging the primary money of the United States. 

Mr. Cobb, of Alabama. How? 

Mr. St. John. Abandon experiment and go back to eighty years of 
our own experience and the world's experience in money. 

Mr. Cobb, of Alabama. In your opinion, would that give us a more 
general dissemination of the volume of money in the country? 



NATIONAL CURRENCY AND BANKING SYSTEM. 353 

Mr. St. John. It would decidedly. May I read niy answer to that 
inquiry on another occasion ? I assume that I may. 

At this present momenta dollar, as the means of acquisition and measure of value, 
is more efficient than in any other period of recent years, prices of staple commodi- 
ties being- ruinously low. And yet at this same time money seeking wages, entitled 
interest, seeks employment vainly, or at rates that barely pay. Under these condi- 
tions fixed capital suffers in the failure of investments, the banker suffers as a 
lender, the merchant in the restricted distribution of commodities, the manufacturer 
and other producer in the current low prices, and labor in want of employment 
starves. In the mutual relations between these elements of the people, accumulated 
wealth loses in the reduction of its income, but regains a portion in the increased 
efficiency of the remainder as related to the commodities which he consumes. No 
other one of these elements, as such other, has profited at all. Labor has lost every- 
thing in losing its employment. The enduring fact, therefore, if these functions in 
money were the only ones to be be preserved, would be "the rich made relatively 
richer, at the expense of the poor made poorer," as one achievement of statute law. 

Mr. J ohnson, of Ohio. Do 3 7 ou consider that the enactment of Sec- 
retary Carlisle's plan into law will produce a great panic? 

Mr. St. John. It will, if the seventh requirement is included, that 
banks must, in order to stay under national charter, not only guarantee 
each other's notes, but sell their $200,000,000 of bonds before July, 1895. 
And if they will not guarantee, but prefer to abandon national charter, 
this sale of their bonds will contract the currency by $180,000,000. It 
can not help creating panic. 

Mr. Johnson, of Ohio. The forcing of United States bonds on the 
market is one element? 

Mr. St. John. That is the primal cause; and then if the Government 
has to issue more bonds to recoup its gold reserve the timidity aroused 
in Wall street as to prices for G-overnment bonds would manifest itself 
in the lack of any market for them, and prove perilous. 

Mr. Johnson, of Ohio. You do not believe in bank currency as a sub- 
stitute for greenbacks and national currency? 

Mr. St. John. What do you mean by "national currency?" 

Mr. Johnson, of Ohio. There are two or three forms. There is the 
Treasury note, which is really a legal tender, and there are the silver 
certificates and gold certificates. Those are national currencey, and 
they are proposing now to substitute the national-bank note for that. 
Do you believe in that plan? 

Mr. St. John. I believe that if additional national-bank notes, or 
any other bank notes, were issued in liberal amount while our primary 
money is chaotic we would go to pieces for a time. 

Mr. Johnson, of Ohio. Are you opposed on principle to this change 
that so many bankers have favored, of the Government going out ot 
the note issuing business and the banks going into it? 

Mr. St. John. I am opposed to the substitution. 

Mr. Johnson, of Ohio. You are not as wise as some who are in 
favor of redeeming and destroying greenbacks. You do not object to 
them as they do ? 

Mr. St. John. The only timidity I have with reference to the green- 
back — and I have that timidity, I am bound to confess — is that it is so 
good a money, so nearly perfect money, and yet not money, that you 
gentlemen will provide more and more to excess of it. The green- 
back is perilously good money, as suggesting more and more of it until 
collapse. 

Mr. Johnson, of Ohio. Your practical suggestion is not to take in 
the notes by the Government? 

Mr. St. John. I would not disturb the greenbacks. 

NAT CUR 23 



354 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. Johnson, of Oliio. You propose in your plan, if I understand it, 
a dollar-for- dollar reserve in coin against these coin certificates. How 
much do you propose in order to provide for times of stringency'? 

Mr. St. John. Forty per cent of coin-certificates additional. 

Mr. Johnson, of Ohio. An increase on the amount of what you have 
of 66§ per cent. 

Mr. St. John. Forty per cent reduction in the reserve. 

Mr. Johnson, of Ohio. I beg pardon. You are wrong in the calcu- 
lation. 

Mr. St. John. I see what 'you mean. Your statement is correct 
mathematically, but I do not believe it would be intelligible after my 
other statement. 

Mr. Johnson, of Ohio. That is, in extraordinary times you propose 
that the coin certificates out shall not be increased beyond the point of 
a 40 per cent reserve, which amounts to an increase of 66§ per cent? 

Mr. St. John. I mean that until bimetallism is the actual achievement 
of my bill, if it be enacted, that the usual reserve against the coin cer- 
tificates shall be 100 per cent. But emergency issues may be made 
against deposits of United States bonds, but only reducing the reserve 
to 60 per cent at lowest. 

Mr. Johnson, of Ohio. Does that afford an elastic currency ? 

Mr. St. John. It is the only really elastic currency that has been 
mentioned to your committee. 

Mr. Johnson, of Ohio. I am inclined to agree with you. 

Mr. St. John. There has been no elastic currency mentioned before 
in the course of these hearings, so far as I have read. This would be 
an elastic currency, and I have given yon the reasons for it. 

Mr. Johnson, of Ohio. You propose to convert the various Govern- 
ment bonds indirectly from bonds into currency? 

Mr. St. John. Stopping the interest that the Government has to pay 
for the time the owners or borrowers use the money which the Treasury 
thus provides, and for no longer. 

Mr. Johnson, of Ohio. It is really an interconvertible plan? 

Mr. St. John. It is a temporarily convertible bond of the United 
States. 

Mr. Johnson, of Ohio. It will contract? 

Mr. St. John. The coin certificates will contract in amount as soon 
as the unusual demand for money ceases. 

Mr. Black. Did I understand you to say this morning that, under 
existing circumstances, you would favor a bond issue? 

Mr. St. John. What I said was this: That the business community 
of the United States to-day is in grave peril; that necessity knows no 
law but the law of self-preservation. I say that the United States 
to-day must redeem its notes in gold, even in defiance of law if neces- 
sary, for the sake of your prosperity and mine. But I say also that 
this ought not to be so. 

Mr. Black. As I understand, the mistake of the Government has 
been made, but your idea is that Ave can not adopt any other plan? 

Mr. St. John. The Government can not adopt any other course until 
it is strong enough in gold and silver both to make alarm ridiculous. 
A giant can do things that a child can not do. The United States was 
able to redeem greenbacks and Treasury notes in silver and laugh at 
such consequences as could have ensued. It is not able to do so to day. 

Mr. Black. That is what I understand. Then, under existing con- 
ditions, you would favor an issue of bonds? 

Mr. St. John. I hope, but my judgment is against the hope, that 



NATIONAL CURRENCY AND BANKING SYSTEM. 355 

we need not issue bonds. But until you furnish a statute which will 
enable the United States to create money in a way to stifle panic, I say 
yes, issne bonds to maintain a gold reserve, although I say we are at 
fault officially for this need. 

Mr Cox. In regard to the plan suggested by the Secretary, you seem 
to have a very serious objection to the requirement that the banks shall 
guarantee the notes of each other. It seems that that is based, to a 
certain extent, upon the idea that liability would be unknown. Suppose 
the law were so amended as to provide that the banks should pay up 
to the extent of 5 per cent of their circulation, and that they should 
then be released; would not that relieve the difficulty? 

Mr. !5t. John. That would take away the negotiability of the note. 
People would be afraid of the notes. 

Mr. Cox. I do not think you have my idea. 

Mr. St. John. Then I misunderstood you. The people to whom you 
offer a note would say: "Is that a note of the Chemical Bank? If it 
is, all right. If it is a note of the Osawotomie Bank, I don't want it." 

Mr. Cox. The guarantee fund is raised to 5 per cent. 

Mr. St. John. But it is to take ten years to raise it. What may 
happen meanwhile? Suppose it is exhausted in the first panic. It 
would take a second ten years to restore this 5 per cent "safety fund." 

Mr. Sperry. The country is now on a gold basis, I take it? 

Mr. St. John. The country is decidedly on a gold basis. 

Mr. Sperry. If I understood you correctly this morning, you said 
that the proposed scheme would put us immediately upon a silver 
basis, and that in about two years we should come back again to the 
gold basis. 

Mr. St. John. No, sir; I allowed the conclusion that we reach a 
silver basis at once. If we did, then I said we would achieve a 
bimetallic basis within two years, when both our dollars, gold and 
silver, would be at par. 

Mr. Sperry. Then what basis would we be on? 

Mr. St. John. A bimetallic basis, with the option to every debtor to 
pay in either coin, one coin being as good as another in the United 
States, and inactically everywhere else in the world. 

Mr. Sperry'. In case we should go on a silver basis, under your pro- 
posed scheme, what effect would that have on the prices of labor and 
commodities ? 

Mr. St. John. It would enhance them materially, but not at once. 
The theory that we would jump into some region of excessively high 
prices is ridiculous. It is not historical. Everything that is readily 
negotiable would advance promptly. It would take real estate in NTew 
York City two years to begin to show the advance notably. Govern- 
ment bonds would not advance for the reason that they are already 
high-priced for the income they yield. But securities in general, rail- 
road securities, would advance, because railroads would promise to be 
prosperous. There would not be any large immediate rise in normal 
prices of commodities for the reason that there is no great amount of 
silver bullion available to the United States to convert into money. I 
said this morning that about $5,000,000 is a liberal estimate for supplies 
on hand in distributing markets, and as soon as present owners saw 
that our mint would fix the price at $1.29 per ounce, they would not 
sell at less. India's supplies would go to her at $1.29 per ounce, as they 
now go at 62 cents an ounce. 

Mr. Sperry^. Then the immediate effect of reaching a silver basis 
would reduce the prices of commodities? 



356 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. St. John. I said just the reverse. I said the immediate effect 
would be to raise the prices of everything, but that the rise would not 
be so rapid as some people imagine. 

Mr. Sperry. Would there be any immediate effect? 

Mr. St. John. There would be, decidedly. 

Mr. Sperry. Then either I do not understand you or you do not 
understand me. What would be the immediate effect 1 ? 

Mr. St. John. If the t-ecretary be the bold man I think him to be, 
and determine to carry out the law in spirit as in letter proposed, he 
would say, u Gentlemen of the United States, if anybody wants any 
part of $200,000,000 at 4 per cent or 5 per cent per annum, let him 
lodge United States bonds therefor and he can have it." Otherwise, 
the immediate effect would be a panic. This provision of my bill 
would stifle any panic that threatened to arise. 

Mr. Sperry. Suppose we leave the bravery of the Secretary of the 
Treasury out of the account, and I will put it in this way: Under your 
proposed scheme Ave should go upon a silver basis? 

Mr. St. John. I say I would not dispute that; I would admit it by 
way of argument. Practically I think that is not true. The demand 
for money, and no silver immediately available for money, would attract 
gold into use, at interest, just as soon as all alarm was seen to be 
ridiculous. 

Mr. Sperry. What would be the immediate effect upon prices of 
labor? 

Mr. St. John. The immediate effect, so far as felt at all, would be to 
raise the prices of everything, including labor. 

Mr. Sperry. Immediately? 

Mr. St. John. That would be the immediate tendency. " Immediate" 
is a vague term. 

Mr. Sperry. There would be no effect downward? 

Mr. St. John. No, sir. 

Mr. Sperry. Would there be a panic? 

Mr. St. John. No, sir; panic would be stifled, as I propose. 

Mr. Sperry. I am asking for the immediate effect, not the final 
effect. I had thought that if we go on the silver basis the effect might 
be a panic. 

Mr. St. John. If the means were not at hand to allay it there would 
be a panic. No business man gets panicky if he can see the means to 
allay it right at hand certain to be used. 

Mr. Sperry. I am speaking of the condition of affairs, which I under- 
stand would result from your bill, if we should go immediately upon a 
silver basis. In that case would not the immediate effect be a panic? 

Mr.. St. John. No, sir; the sight of the means at immediate com- 
mand to allay panic would prevent a panic. 

Mr. Sperry. There would not be a panic if there was not any panic. 
I understand that. 

Mr. St. John. I mean to answer you with entire frankness, and I do 
not mean to be captious. As I understand it, a panic could arise only 
from a shrinkage, or fear of shrinkage, in the volume of money. Now, J 
propose to meet that with $200,000,000 of coin certificates of the United 
States of America — as good a certificate for money as can be made. 

Mr. Sperry. In other words, $000,000,000 of gold would go out? 

Mr. St. John. I did not say that; I do not admit it. My bank has 
$1,400,000 of gold on hand as part of its reserve. Not a dollar of it would 
be disturbed. It w r ould all lie there as now, in reserve against our 
$10,000,000 or $11,000,000 of deposits. 



NATIONAL CURRENCY AND BANKING SYSTEM. 357 

Mr. Sperry. Would you cash checks with that gold? 

Mr. St. John. We would not. We do not do so now except as a favor. 

Mr. Sperry. It does not circulate? 

Mr. St. John. No. 

Mr Sperry. You prefer it as a reserve? 

Mr. St. John. I do, decidedly, under the statutes as they exist. For 
large transactions gold is preferable to sixteen times its weight in silver, 
and doubtless always wilJ be. 

Mr. Sperry. Then there would be no immediate panic? 

Mr. St. John. None whatever, if the provision proposed is included 
in the act. Men are not children. We are not doing business on that 
basis in New York or elsewhere. 

Mr. Sperry. What are the means you speak of, that you think would 
allay what is generally considered to be an immediate effect of going 
off a gold basis? 

Mr. St. John. I think if anybody has the United States bonds, or 
if he can hire them, as has frequently been done, he could lodge them 
in any sub treasury or in the Treasury, and obtain any part of the 
$200,000,000 coin-certificates. These coin-certificates are to be a limited 
legal tender; as such, unless contracted against, they are money. 
There will be no objections to them if the money market is stringent. 
Clearing-house certificates are good enough for money in dread of 
panics; the United States certificate is their superior. 

Mr. Sperry. Those coin certificates would be redeemable, how? 

Mr. St. John. In coin, at the Treasury's option as to whether gold 
or silver coin. 

Mr. Sperry. And if the condition of the Treasury were such as to 
force the Treasury to redeem those coin certificates in silver, then 
what? 

Mr. St. John. The Treasury would not be asked to redeem any, that 
is all. It would not now be asked to redeem greenbacks or Treasury 
notes, had the like option been availed of when it ought to have been. 

Mr. Sperry. Then should we not be on a silver basis? 

Mr. St. John. I said so ; or on a paper basis, because the Treasury 
only owns a few million silver dollars at present. 

Mr. Sperry. Then the means you propose to allay the panic would 
not come into operation, would they? 

Mr. St. John. I do not know Avhy not. I never a saw a silver dollar 
at a discount, and I have bought them at 3 per cent premium. I 
offered in large type in every New York daily paper, for two days, three- 
quarters of 1 per cent premium for silver dollars to be paid for in clear- 
ing-house checks at the height of the panic of 1893. 

Mr. Sperry. In your judgment, if we go immediately upon a silver 
basis and the Government bonds are brought in and transferred into 
coin certificates, possibly in silver, no panic would result? 

-Mr. St. John. Not if my proposition of relief is adopted in the 
shape discussed. 

Mr. Sperry. What would be its effect on foreign exchange? 

Mr. St. John. I told you this morning what the first effect would be 
if we were on a silver basis ; it would depend entirely upon how much sil- 
ver was offered at our mints. Tf a stringent demand for money appeared 
I would not be surprised to see dollars of the United States, of whatever 
composed, worth a premium as money in New York, over exchange on 
anywhere, right off. If scarcity of money were caused by the fulfill- 
ment of your idea that we would be immediately upon a silver basis, 
the demand upon gold for use as money would be superior to any prom- 



358 NATIONAL CURRENCY AND BANKING SYSTEM. 

ise of a premium on the gold in hoarding. If scarcity of money did not 
ensue the point of your inquiry is removed. 

Mr. Sperry. If you now draw exchange on Loudon it calls for gold, 
does it not? 

Mr. St. John. It means gold on the other side, or Bank of England 
notes. 

Mr. Sperry. Those are the equivalent of gold always. 

Mr. St. John. Not always, but means that now. 

Mr. Sperry. If at the present time you draw exchange from London 
on New York that means gold ? 

Mr. St. John. Nobody ever does that. 

Mr. Sperry. Are not remittances made if there is a balance in our 
favor f 

Mr. St. John. That is the other way. There are no remittances to 
us in that shape, in sums worth mentioning. Dealings in monej^between 
Europe and the United States are by drafts always on London, or else- 
where over there. 

Mr. Sperry. If I wanted to remit to New York, would I draw a draft ? 

Mr. St. John. No, sir; actual money would be shipped, unless you 
made a deposit in London to the credit of your creditors. If exchange 
on London were at a discount in New York, they would ship gold this 
way; it is the only acceptable thing they have to ship. 

Mr. Sperry. Are there times when exchange on London is at a dis- 
count in New York? 

Mr. St. John. Many times. As, for instance, while the "Sherman 
Act" repeal bill was pending, and the New York papers had told alarm- 
ingly of our exportations of $71,000,000 between February and June, 
there came a day in June, 1893, when gold began to return. In the 
course of the four months ending with September, $55,000,000 of gold 
returned from Europe to New York. Would you believe that the New 
York papers forgot to direct public attention the fact"? The "Sherman 
law" was not repealed until November 1. The reason that gold came 
back, the continuing "Sherman Act" to the contrary notwithstanding, 
was because exchange on London was at a discount in New York. 

Mr. Sperry. What would be the rate of exchange between New 
York and London if we were on a silver basis? 

Mr. St. John. That would be a mere guess at present ; there is nothing 
to base an opinion upon. 

Mr. Sperry. What would it represent? 

Mr. St. John. It would represent the then present value of the money 
of the United States; which I think will be as good money, and as 
attractive to other nations, as an example, as any money in the world. 
It will be the very best if it restores our own and their prosperity. 

Mr. Sperry. That is the bullion value? 

Mr. St. John. No, sir. 

Mr. Sperry. W r ould it represent the bullion value of gold and silver 
money? 

Mr. St. John. It would represent what was then the relative bullion 
values of our gold and silver coins. 

Mr. Sperry. At the present time a merchant buying $1,000 worth 
of goods in London pays $1,000 in New York, within a range of 1 or 2 
percent for exchange, I take it? 

Mr. St. John. I think I understand you, and if I do, that is about 
correct. 

Mr. Sperry. Suppose we were on a silver basis and that a New 
York merchant buys $1,000 worth of goods in London; how much will 
his draft cost him? 



NATIONAL CURRENCY AND BANKING SYSTEM. 359 

Mr. St. John. That will be takeo into the account in the price of the 
goods when buying, and he will not remit such money as you imagine. 
I will explain : The silver dollar of the United States, if it were in London 
to-day, would sell there at a discount of about five-eighths of 1 per cent. 
That is par, less freight, insurance, and interest to Xew York. It would 
not sell at the value of the bullion composing it, as you are sometimes 
told here. If the mints of the United States were wide open to silver, 
as they are to gold, the market price of silver, for a time at least — and 
this will commend itself to anybody — would be the coining price of silver 
at our mint. 

Mr. Sperry. What does the Mexican dollar sell for in London? 

Mr. St. John. It sells for its bullion value without regard to the law 
of Mexico. Let me explain. 

Mr. Sperry. Answer it now. 

Mr. St. John. I will answer it now. I object, first of all, to Mexico 
as a criterion for the United States. Mexico's population does not 
exceed the aggregate population of Pennsylvania and New York. 
Mexico's little internal-trade employment for her money may be 
imagined from the fact that her entire railroad system embraces about 
one-third the direct track mileage of the Erie Liailway, only one-sixth 
of the direct and side-track mileage of that single one of the railroad 
sj^stems of the United States ; and Mexico imports of commodities, 
which are her mere comforts, together with her luxuries, an aggregate 
of more than she has anything else, but her silver product to give for 
them. Therefore, as a seller of silver necessarily at any price obtain- 
able, her silver coin and bullion stand practically alike in the markets 
of the world. 

Mr. Sperry. What is the relative bullion value of the Mexican dol- 
lar and the American dollar? 

Mr. St. John. One is about 420 grains and the other about 412J, 
nine-tenths fine. 

Mr. Sperry^. The bullion value of the Mexican dollar is worth more 
than the bullion value of the American dollar? 

Mr. St. John. Yes; and our trade-dollar's bullion value was the 
same as that of Mexico when we had trade dollars. When our trade 
dollars were deprived of their legal-tender function they sold like 
bullion, at a discount, while our ordinary 412.50-grain silver dollar was 
at par. 

Mr. Sperry. Have you stated the price of the Mexican dollar in 
London ? 

Mr. St. John. It is whatever the price of silver bullion is, and a 
little more. They fetch anywhere from one-half of 1 per cent to 1 per 
cent more than bullion, because available for exportations to China as 
money. 

Mr. Sperry. It sells as bullion? 

Mr. St. John. At a moderate premium over bullion. 

Mr. Sperry. The American dollar does not sell as bullion? 

Mr. St. John. It would sell to-day in London for 100 cents in gold, 
less about five-eighths of 1 per cent, the cost of transportation to New 
York. 

Mr. Sperry. Just on a par with the greenback? 

Mr. St. John. Or the gold dollar when exchange on London is at 
a premium as now. 

Mr. Sperry. These two kinds of dollars, Mexican and American, 
being of substantially the same bullion value, can you explain why it 
is that in London the Mexican sells for about 50 cents in gold and the 
American for about 100 cents in gold ? 



360 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. St. John. Because the aggregate of American dollars (gold, 
silver, and paper) is not greater than our aggregate employment for 
them all as money. Our gold, silver, and paper dollars, as long as they 
are equivalent legal tenders and as long as the aggregate of them does 
not exceed our use for them as money, will always be at par at home and 
abroad. Demand for dollars here relative to the supply of dollars here 
will comprehend the whole question. 

Mr. Sperry. Would it be true to say in answer to the question I put 
to you that the American dollar sells at par, so to speak, because the 
American Government maintains a parity between the two metals'? 

Mr. St. John. Not a bit of it. The Government does not do it. 
Neither the Treasurer of the United States nor any assistant treasurer 
would dare to-day to redeem 10,000,000 of silver dollars in gold. He 
would have a storm of popular indignation upon him over night. 

Mr. Sperry. Then you think the Government does not maintain a 
parity ? 

Mr. St. John. I know that the Government does not maintain the 
parity between our silver dollars and our gold coin. The business 
demand for dollars, whatever composes dollars, maintains this parity in 
their use as money. The Government does not, and could not just now. 

Mr. Sperry. The parity is maintained, is it? 

Mr. St. John. It is, in spite of the pitiable condition of our Treasury. 

Mr. Sperry. Then I w:ll put the question in that way: Do you think 
the American silver dollar sells at par in London because the parity of 
the two metals is maintained in the United States? 

Mr. St. John. Yes, sir ; that is it exactly. You mean the coins, of 
course. 

Mr. Sperry. Of course I meant gold and silver coin. If we go on a 
silver basis, that ends the maintenance of the parity between the two 
metals? 

Mr. St. John. I did not admit it for a moment; and I do not believe 
it, though I assented to it, provided it suited you. I said, to begin 
with, that there is not $5,000,000 worth of silver bullion available at 
once to the United States, if our mints were reopened to silver. Can 
you imagine the United States unable to add $5,000,000 to its aggre- 
gate of money at par? Until the volume of silver brought to our 
mints becomes so great that we can not use the money into which we 
convert it, $1.29 per ounce pure will be the world's price for silver bul- 
lion everywhere. 

Mr; Sperry. Then, in your judgment, if we should go upon the sil- 
ver basis, the parity being destroyed by whomsoever destroyed, a mer- 
chant in New York buying $1,000 worth of goods in London would 
merely remit $1,000 without regard to the difference in value between 
gold and silver coin? 

Mr. St. John. You surely would not attribute any such impression 
to an intelligent man. I did not say anything like that. 

Mr. Sperry. I understood you to say so. 

Mr. St. John. No, sir. 

Mr. Sperry. Then what would be the effect, the parity being broken 
down or lost, if a New York merchant wants to settle a $1,000 account 
in London? How much will it cost him in American money? 

Mr. St. John. That would depend upon relative prices in New York 
and London, ascertained daily by cable, for wheat, cotton, pretroleum, 
and the like. The difference and a margin for safety would determine 
practically the rate of sterling exchange. 

Mr. Sperry. Lie would speculate in the wheat market? 



NATIONAL CURRENCY AND BANKING SYSTEM. 361 

Mr. St. John. He would decidedly not speculate. Such transac- 
tions proceed daily now. The buying here and selling over there are 
practically done at a single moment. The movement of commodities 
from the United States determines whether exchange on London is at 
par, or a premium, or a discount in New York. 

Mr. Sperry. Suppose he did not want to go into the wheat market ? 

Mr. St. John. He would not need to go into the wheat market. I 
told you the way in which the price of exchange is fixed. But if the 
movement of commodities left us debtors in the balancing of trade, then 
the rate of exchange on London would be fixed at once and for so long 
at the difference between London's price for the gold bullion and silver 
bullion in our dollars. 

Mr. Sperry. Suppose he did not want his banker in London to spec- 
ulate in the wheat market. Suppose he should go to his New York 
banker and ask for a London draft to pay $1,000 in London; how much, 
would he have to pay his New York bank for the London draft after the 
parity is lost 1 

Mr. St. John. The difference in exchange would equal the difference 
in the parity, as just explained, under the conditions mentioned. 

Mr. Sperry. That is exactly what I am trying to get at. That 
would be the difference between the bullion value of gold and silver 
coinage of the United States, would it'? 

Mr. St. John. At the time when the transaction is made, our mints 
being open without limit to both metals, our trade relations with 
Europe would answer your inquiry. I predicted this morning our rela- 
tions to become the creditor in trade with Europe. 

Mr. Sperry. Then if the silver dollar were worth 50 cents, and we 
were on a silver basis so that all the New York checks would be cashed 
in silver, he would have to draw a draft for how much — $2,000? 

Mr. St. John. I could not suppose any such thing. That could not 
exist. The supposition is an impossibility in itself, when the United 
States stands ready to coin at 1.29 per ounce. 

Mr. Sperry. Now, you are assuming. 

Mr. St. John. But you must not put upon me an assumption that I 
regard ridiculous. 

Mr. Sperry. But you are assuming that the United States comes 
in to establish the parity, are you not ? 

Mr. St. John. I am not; not to establish the padty as you mean; 
but if the United States proposes to coin into our money without limit 
all the silver that is offered, and if all that can be offered, for years at 
least, can not be more than we can use acceptably as money, your 
assumption is not reasonable. 

Mr. Sperry. Is it an answer to the question to assume that the 
United States comes to the assistance of the New York merchant and 
establishes a parity 1 ? 

Mr. St. John. That would seem, on its face, to be an offensive way 
of putting your inquiry. 

Mr. Sperry. I do not wish to be offensive, but if you can answer my 
question I will put it over again, and give you another opportunity. 
Whatever you say goes. The question is this: Assume that we have 
lost the parity. Under your answer I take it I had a right to assume 
that. New York checks are cashed in silver dollars, the bullion value 
of which is 50 cents of their face, in round numbers. A New York 
merchant wants to settle a $1,000 account in London which calls for 
gold. He goes to his New York banker and asks for a draft on Lon- 
don. How much will he have to pay for that draft in order to settle 
that account in London? 



362 NATIONAL CURRENCY AND BANKING SYSTEM. 

Mr. St. John. Unless the chairman insists upon my answering- that 
question " yes or no," which would be grossly unfair to me, I will restate 
all there is of a question in what you ask, and answer it. Whatever is 
the difference in price between 371.25 grains of silver bullion in New 
York and 23.22 grains of gold bullion in New York, that difference will 
be the premium on exchange on London in New York, unquestionably. 

Mr. Spebry. That is exactly what I supposed. 

Mr. St. John. I will not assume for a moment that 50 cents will be 
the price of the silver bullion in our dollar anywhere, when our mint 
values it at a hundred cents. I would not sanction that statement for 
a moment, so long as India continues her vast demands upon the 
world's supplies of silver, and there is not the slightest prospect that it 
will cease. 

Mr. Sperry. What is the bullion value of a silver dollar to-day? 

Mr. St. John. About forty-nine and odd cents. I have not seen the 
quotations for two or three days. Butourownand every other mint 
in the world 'are practically closed against silver, excepting that of 
India. Indian princes are coining ; and the Government is coining rupees 
on Government account, and will continue to. 

Mr. Sperry. We have to deal in legislation with existing conditions. 

Mr. St. John. Oh, no; not at all. We create conditions by law. 
We govern sixty odd millions of people, occupying 3,000,000 square miles 
of as productive territory as the face of the globe could provide, 
under one dictation of enlightened law. 

The Chairman. Are there any other questions? 

Mr. St. John. I should like to place myself on record by saying two 
or three things, if it will not take up too much time. 

I object to the conclusions of the Comptroller of the Currency, in 
his report for the present year. On page 33 of that report, at the bot- 
tom of the page, he says : 

Under the existing laws, the Government standing responsible for the redemption 
of the circulation of failed national hanks, up to January 1 last, had there been no 
bond deposit whatever, the loss to it would have been but $1,139,253, and of this 
amount $958,247 represents the loss by banks whose trusts are still open and will 
pay further dividends, thus reducing the amount last named. 

My comment on this is that no one knows what would have happened 
"If." We do know that the safety-fund system of the Baltimore plan 
failed disastrously in ]New York, that the Suffolk system failed expen- 
sively in emergency, and that every other but the one national-banking 
system of note issue has been costly to the people of the United States. 

I desire to ask if I may submit this paper with reference to the experi- 
ence of France that I referred to this morning. 

The Chairman. Certainly, 

Mr. Haugken. It is understood that he may offer anything he 
desires. 

The Chairman. Certainly. 

Mr. St. John. With your permission, then, I will append this matter 
in proper sequence for the printer, following the paper read this morn- 
ing. 

Mr. Johns'on, of Indiana. Pardon me. Mr. Chairman, I believe a 
meeting for the committee has been appointed for to-night. It will be 
very inconvenient for members to come up here, and I desire to move 
that we now go into executive session, with a view of seeing if we can 
not attend to our business and avoid a night meeting. We are all 
tired. Mr. St. John has been heard at length, and it seems to me that 
he might have made these attacks or refutations in the time he has 



NATIONAL CURRENCY AND BANKING SYSTEM. 363 

occupied, instead of going so extensively into a discussion of the silver 
question. I think he should be allowed to put himself on record with- 
out testifying. 

Mr. St. John. I only desire to refer to two or three other matters. 

The Chairman. Mr. St. John can state briefly what he desires. 

Mr. St. John. Mr. Horace White, on page 85 of the report of these 
hearings, said, in commending the safety-fund system of bank notes: 

Both systems (the New York safety-fund and Suffolk systems) aim to secure note- 
holders, and both are adequate to that end. 

I beg to offer, in rebuttal, Hon. John J. Knox, in his report as Comp- 
troller for 1876. On page xxiii he reports regarding the New York 
safety-fund experience that: 

Contributions to the fund were first made in 1831. In 1811 to 1812 eleven of the 
safety-fund banks failed, with an aggregate capital of $3,150,000. The sum which 
had been paid into the fund by these banks was about $86, '271, while the amount 
required for the redemption of their circulation was $1,518,588. 

Mr. Walker. In a subsequent report Mr. Knox changed his opinion. 

Mr. St. John. This is no part of his opinion. I do not offer anyone's 
opinions. Facts only interest me in this perilous controvesy. I will 
offer in rebuttal again of Mr. Horace White, and these points cover ail 
he offered you as facts to base your opinions on, the following as to the 
Suffolk system. It went to pieces on more than one occasion, and it 
did not aim to maintain bank notes at par. It bought bank notes at a dis- 
count. The people have learned the value of money at par. They 
won't approve of any other. Here is the rebuttal of Mr. Horace White : 

[The Suffolk Bank, by D. R. Whitney, president of the Suffolk Baiik, Riverside Press, Cambridge 

Mass., 1878.] 

The business man of to-day knows little by experience of the inconvenience and 
loss suffered by the merchant of sixty years ago arising from the currency in which 
debts were then paid (p. 1). Suffolk Bank's charter was granted February 10, 1818. 
There were only six banks in Boston (p. 3). If any bank deposits with Suffolk 
Bank $5,000 permanently, and more as needed irom time to time, such bank shall 
have the privilege of receiving its own bills at the same discount at which they are 
purchased (p. 7). About this time, May, 1825 (p. 16), the Phoenix and Pacific banks 
of Nantucket failed to redeem their bills. * * ' After a delay of two months a 
settlement was made (p. 17). Between 1831 and 1833 a great increase took place in 
the number of banks in New England. * * * The Suffolk Bank became over- 
loaded with bills (p. 23). 

During the winter of 1835-36 thirty-two new banks were chartered. * * * 
Many of these banks with little or no real capital; specie was borrowed one day to 
be counted by the bank commissioner and replaced next day by the notes of stock- 
holders; the bills of these banks, loaned in violation of the usury law at high rates 
of interest, were used in the wildest speculations. * * These bills poured in 

upon the Suffolk Bank until forty-four banks were overdrawn $661,000, and Suffolk 
Bank rebelled (p. 25). * * * The threatening storm now broke (May, 1837); 
Suffolk Bank, in common with other banks, suspended specie payments (p. 28). 

* " * Suffolk Bank's total losses by Eastern banks was very great (p. 30). 

* * * About this time (1844) arrangement was made with bankers and others 
in New York to receive New England bills at one-tenth of 1 per cent discount (p. 38). 

* * * In December, 1855, the difficulties attending the business had become so 
great that the propriety of giving it up was discussed. It was decided to continue 
it (p. 52). During the five years preceding 1857 a large increase of banks took place 
in New England. * * Speculation was rampant, * * specie reserve was 
low, * * * loans had increased, so that the banks were in a very poor position to 
withstand the panic which then took place (p. 55). On October 14, in common with 
other banks and on recommendation of the clearing house, the Suffolk Bank sus- 
pended specie payments (p. 56). 

Mr. Johnson, of Indiana. What went to pieces? 
Mr. St. John. The Suffolk redemption system, not the Suffolk Bank. 
That is a prime national bank to-day; and we are one of its corre- 



864 NATIONAL CURRENCY AND BANKING SYSTEM. 

spondents in New York. That note-redemption system was utterly 
inadequate. It was a disastrous failure at three distinctly separate 
times. 

Mr. Johnson, of Indiana. What broke down? 

Mr. St. John. The whole system known as the Suffolk Bank note- 
redeeming system. The whole thing broke down because too much 
work was put upon it. It was not adequate to the occasion. There was 
not specie available with which to fulfill obligations created and floated. 
Nothing similar would fare better to-day. 

Mr. Johnson, of Indiana. The distinguishing feature of that system 
was the redemption of bank notes? 

Mr. St. John. Yes: they did not always have the means to redeem 
the notes. 

Mr. Johnson, of Indiana. I do not want to seem to be discourteous 
to Mr. St. John, but much he has said, in my opinion, has not been 
relevant. If he desires to make a direct reference that will occupy but 
a few moments, I have no objection to his doing so, or to his inserting 
in the record some quotation that he thinks desirable. But I do not 
believe that it is necessary for us to hear these matters in extenso. 

The Chairman. How much time do you desire, Mr. St. John? 

Mr. St. John. If I can have five minutes I can say all I desire. 

The Chairman. Proceed. 

Mr. Warner. I understand that Mr. St. John is at liberty also to 
extend his remarks and put them in the shape he wishes to have them 
appear in the record. 

Mr. St. John. After the stenographer's notes are sent me I can make 
my revision? 

Mr. Warner. Yes. 

Mr. St. John. With regard to the testimony of Mr. Butler, of New 
Haven, I will say that he is my personal friend, and knows that I esteem 
him highly. We differ in our notions as to money. He seems to have 
said that if free coinage of silver were to be provided he would sell out 
everything and invest in real estate, "because I could raise my rentals 
and get a fair return for. my money." I would rejoin that if there were 
no prosperity accompanying free coinage his tenants could not stand a 
rise in rent, if they could pay ai^ rent at all. 

A similar prediction was attributed by the New York papers to my 
warm personal friend, Mr. George S. Coe. president of the American 
Exchange National Bank of New York, and chairman of the finance com- 
mittee of the Chamber of Commerce, in connection with the Bland- 
Allison act of 18 T8, as that enactment might affect specie payments 
in 1879. Our newspapers attributed to Mr. Coe the assertion that he 
would give $50,000 to purchase first place on the line at the subtreasury 
in New York to demand gold for greenbacks on January 1, 1879, if the 
Bland- Allison act were not vetoed by the President. The act became a 
law over the veto, and against the predictions of the New York papers of 
a cataclysm if it should. In 1880, while the Bland act was in execution, 
and 75,000,000 of silver dollars were already coined, the United States 
imported $75,000,000 more than it exported of gold that year; and in 
1881, after $105,000,000 of silver dollars had been coined, the United 
States imported $97,000,000 more of gold than it exported that year. 
And remember that $55,000,000 of gold was imported after $71,000,000 
had been exported, while the Sherman Act repeal was still pending 
and uncertain in 1893. ■> 

T desire to say also that I object to the conclusions of Mr. Hepburn, 
when Comptroller of the Currency, on page 32 of his report for 1892. 



NATIONAL CURRENCY AND BANKING SYSTEM. 365 

Mr. Hepburn is now president of the Third National Bank of New 
York. On that page 3ii he said: 

Over 90 per cent of all business transactions are done by means of credit. When 
the pnblic lose confidence and credit is impaired and refused, over 90 per cent of all 
business transactions are directly affected. It is easy to realize how impossible it is. 
for the remaining 10 per cent of money to cany on the business of the country with- 
out monetary stringency and financial distress. 

Ninety per cent of the banking business may be conducted in credit 
substitutes for money, but the banking business is only a portion of all 
the business of the United States. The buying of cotton and of grain 
from first hands, called the "first movement of the crops," is done 
mostly with actual money. Eailroad fares and city travel are paid for 
in actual money. Much of the retail business of the country of all 
kinds and pay rolls, etc., employ actual money, as Comptroller Eckels 
in his recent report shows. The aggregate of all other than the banking 
business, therefore, is vast, and employs a vast aggregate of money. 

I desire further to object to Canada as a criterion for the United 
States, as advanced by Mr. Horace White and Mr. Cornwell. 

Canada will be a criterion for the United States when the eagle takes 
dictation from the humming bird. 

The total population of all the provinces composing Canada is less 
than 4.850.000 ; the population of the State of New York alone is 
5,900,000 ; population of the United States, 67,000,000. The circulating 
notes of all the chartered banks of Canada are less than $40,000,000 ; 
the gold coin in the clearing-bouse banks of New York City, Novem- 
ber 25, 1894, was $96,000,000. The aggregate resources of all the char- 
tered banks of Canada was less than $315,000,000 ; the aggregate 
resources of the clearing-house banks of New York City alone exceeds 
$1,434,000,000 ; the aggregate resources of the State and national banks 
of the United States exceeds $7,340,000,000. 

Canada's bank act was "assented" to May 16, 1890. It has had no 
strain upon it. Thirty-nine banks compose the system which it governs. 
The United States statutes, on the lines proposed by Secretary Car- 
lisle, would govern 8,000 banks (State and national). 

I desire, finally, to submit for the consideration of the committee the 
following concurrent resolution intoduced in the Senate by Senator- 
Matthews December 6, 1877, which passed the Senate January 25, 1878, 
and passed the House promptly thereafter: 

Therefore, he it resolved hi/ the Senate (the House of Representatives concurring therein),. 
That all the bonds of the United States issued or authorized to he issued under the 
said act of Congress hereinbefore recited are payable, principal and interest, at the 
option of the Government of the United States, in silver dollars, of the coinage of 
the United States, containing 412i grains each of standard silver; and that to restore 
to its coinage such silver coins as a legal tender in payment of said bonds, principal 
and interest, is not in violation of the public faith, nor in derogation of the rights 
of the public creditor. 

Mr. Stanley Matthews died a justice of the Supreme Court of the 
United States. 

Mr. Chairman and gentlemen, I hope you will overlook the defects of 
my statements. My nervousness is due to my severe cold, which kept 
me coughing half the night. I apologized for it in advance; and I 
thank the committee for its kind attention. 

Mr. Johnson, of Ohio. I move that the hearings be now closed. 

The motion Avas agreed to. 

Mr. Johnson, of Indiana. I move that the committee go into execu- 
tive session. 

The motion was agreed to; and at 3.54 o'clock p. m. the committee 
went into executive session. 



366 NATIONAL CURRENCY AND BACKING SYSTEM. 

The Chairman. Mr. William B. Dana, editor of the Commercial and 
Financial Chronicle, of New York, who was invited to address the com- 
mittee, has forwarded the following letter, transmitting an article from 
his journal, giving his views as to the adjustability and safety of bank 
not es : 

New York, December 15, 1894. 
Dear Sir: I have written a short article in the Chronicle issued 
to-day on what seems to be the most important feature of a new bank- 
note system. As you desired my views on the questions now before your 
committee, I take the liberty of sending you a copy of the paper, and 
have also sent a copy to each member of your committee. 
Yours, very truly, 

William B. Dana. 
Hon. William M. Springer. 

The article is as follows : 

"IHE ADJUSTABILITY AND SAFETY OF RANK NOTES. 

"As the week closes the indications are that the Banking and Cur- 
rency Committee will report Mr. Carlisle's currency measure to the 
House on Monday or soon thereafter. We think this step is taken not 
because the majority favor the bill as it now is, but in deference to the 
Administration and to hasten the progress of the subject-matter for 
legislative action. There are obvious defects in the bill as it stands, 
needing amendment, and yet it has also some admirable features which 
can be utilized, so that altogether a good system and a rectification of 
our Government issues may be put into operation speedily, if the senti- 
ment of the Senate and House on currency matters has been sufficiently 
progressed by the events of the past few months. 

" It is impossible to say much in one short article on so broad a subject. 
There is, however, a point in this discussion with reference to a new 
bank-note system at which the advocates of reform divide and separate 
into two distinct bodies, getting farther and farther apart as the details 
of any plan are unfolded. By fixing the attention on that feature and 
analyzing the existing differences of opinion in that particular between 
men equally earnest and honest, it may be that a more perfect union of 
sentiment can be obtained. An effort for such a union is highly desir- 
able, for the views held now are so antagonistic — not as apparent in 
the general purpose as in the arrangement of the details — that both 
can not be right; one or the other position must be abandoned in 
formulating a new system. 

" The difference referred to grows out of a preference between the 
choice of methods suggested by the alternative whether, in providing a 
bank-note system, elasticity or safety is the prime consideration. That 
is, should the aim first be to devise a note that is safe — " as good as 
gold," as one writer has expressed it — and then try to make the system 
responsive to commerce, or should we first make it elastic, that is, 
responsive to commerce, and then make the note as safe as it can be 
-made consistent with perfect elasticity. A very considerable body of 
<our people start with a firm belief that the present national-bank note 
system is a perfect model, claiming that since no man ever lost a dollar 
from the use of these notes, that it has been and is what we must have 
again. On the other hand, a large number say that the use of bank 
motes is to facilitate commercial transactions, and as there are tides in 
those transactions, periods in each year and periods among the years, 



NATIONAL CURRENCY AND BANKING SYSTEM. 367 

when the body of merchandise to be moved and the body of exchanges 
occurring vary greatly, so there should be corresponding currency tides. 
In other words, the system ought to be so planned that the quantity of 
the notes outstanding will always and automatically adjust itself to the 
varying extent of the commercial requirements. These words express 
in brief two classes of thought, one or the other of which, as already 
said, must control in the formation of a bank-note plan, for both condi- 
tions can not be brought to perfection in the same contrivance. 

" We say the two can not be in perfection in the same system, because 
what is intended by "perfect safety, 7 ' or " as good as gold," is the con- 
ferring upon a commercial instrument — upon a mere promise to pay, 
which is all that a bank note can be — the quality of passing everywhere 
like gold, being hoarded like that metal, never consequently seeking 
its issuer, but enjoying a grade of confidence that public credit alone 
enjoys. This position can be secured only when no easy and quick 
metlx)d of redemption is adopted, and when the Government in some 
form is made sponsor to the promise — a situation which, if created, will 
ever after prevent the note from beiug in touch with commerce, that is, 
from going into and out of the issuer's vaults in response to the varying 
degrees of commercial activity, such as call for an increase or decrease 
of the volume of currencj 7 afloat. 

" If we were to subject the Baltimore plan and Mr. Carlisle's plan to 
this test we should say that neither of them was satisfactory; in one 
feature Mr. Carlisle's plan is the better though not perfect, but in the 
other the two are alike lacking. The point in which the {Secretary's 
arrangement is preferable is with respect to the Government indorse- 
ment .5 his scheme does not provide any such liability. On the other 
hand, the Baltimore plan states that "the notesof insolvent banks shall 
be redeemed by the Treasurer of the United States out of the guaranty 
fund if it shall be sufficient, and if not sufficient then out of any money 
in the Treasury, the same to be reimbursed to the Treasury out of the 
guaranty fund when replenished either from the assets of the failed 
bauks or from the tax aforesaid." This provision we consider is objec- 
tionable, both because it puts the Government into the banking business, 
and also because no currency can be responsive to commerce which 
circulates on and enjoys the credit of the Government. 

" No matter in what way the Government responsibility may be attached 
to the promise, it takes from the mobility of the note. That, of course, 
is the more obvious when the method of securing this responsibility is 
by the use of a United States bond, as is the case at present with our 
national-bank notes. Mr. Hepburn remarked upon this point at the 
bankers' convention when the Baltimore plan was under discussion. 
He stated that no bank-note device secured by stocks or bonds could 
possess elasticity. "A currency to be elastic must be issued against 
credit." "In no other way can it meet the wants of commerce." Mr. 
Homer on the same occasion said: "Our currency must be supplied by 
the banks, not by the Government. * # * The banks are the arter- 
ies of commerce, feeling instantly the changes of commercial activity 
and intimately acquainted with its volume and requirements. * * * 
Hence the currency must be elastic, stretching out over the broad 
expanse of business activity, able to supply its fullest wants, and con- 
tracting again as the strain of commercial vitality relaxes." Mr. Car- 
lisle, in his recent report, made much the same assertions, showing how 
unsuitable the present bank-note device is for meeting great exigen- 
cies, that is occasions when commerce needs quick currency expansion, 
and, he might also have added, when it calls for corresponding tern- 



368 NATIONAL CURRENCY AND BANKING SYSTEM. 

porary retirement. We have ourselves several times referred to the 
same defect 5 the last two occasions were about two months ago (Octo- 
ber 13, p. 622, and October 27, p. 719), when we specified some of the 
difficulties interposed to the automatic expansion and contraction of 
a bank currency based upon stocks or bonds or the credit of the 
Government. 

u Both of these plans are also defective in the matter of redeeming 
agencies for the note. The Baltimore scheme, instead of providing a 
method with as little friction and as much within the lines of commerce 
as possible, makes the redemption the same as now exists under the 
national banking law. Consequently Washington, the capital of the 
country, and in no sense a commercial center, becomes the axis around 
which this " flexible currency, responsive to the demands of commerce," 
must revolve. We can do no better than to quote the words of Mr. 
George A. Butler, of New Haven, on this point, who gave his views the 
current week to Chairman Springer and the members of the Banking 
and Currency Committee : 

" ' One thing [he said] he would insist upon, and that was that a central redemption 
bureau should be maintained in New York, since banking, being a purely commercial 
and not a political business, should be centered in the commercial rather than the 
political capital of the country. By having redemption conducted at the point to 
which nearly all the notes of banks all over the country were attracted, the redemp- 
tion process would be made quick and easy and the profit and the security of the 
circulation of all the banks thereby promoted.' 

" This feature of quick, easy, and natural redemption in place of the 
artificial and circuitous affair maintained at Washington is so essential 
to the keeping of any bank-note currency subject to and its quantity 
under the influence of commerce, we should think it would commend 
itself to every experienced banker desiring to make the new note sys- 
tem safe and to put it beyond the power of deranging our industries. 

"If, then, the bankers who prepared the Baltimore plan really meant 
what they said, will it not be necessary for them before they can attain 
the ends they are seeking (1) to take out the clause which makes the 
Government sponsor for the note and (2) to change the method of 
redemption % " 



NATIONAL CURRENCY AND BANKING S^TEM. 369 



ADDENDUM. 

On page 49 of the hearings, at the close of the second paragraph, 
the Secretary of the Treasury submitted a table showing the compar- 
ative profits of circulation under the proposed plan and under the 
existing law. This table was prepared in the office of the Comptroller 
of the Currency, and is as follows : 

Statement showing profit accruing to a bank issuing circulation upon the plan proposed by 
the Secretary of the Treasury. 

[Prepared by the Comptroller of the Currency.] 

Under plan proposed by the Secretary : 

A bank with $100,000 capital could receive $75,000 in notes, but must deposit 
$22,500 in legal tenders. 

$75,000 loaned at 6 per cent would yield $4, 500. 00 

Deduct expenses, etc., viz: 

Loss of interest on $22,500 investedin " legal tenders " depos- 
ited (at 6 per cent) $1, 350. 00 

Annual cost redemption of $75,000 circulation 37. 50 

Express charges on $75,000 circulation 2. 50 

Cost of plates for $75,000 circulation 6. 25 

Agents' fees on $75,000 circulation 5. 82 

(This charge is. based on cost of present plan of redemp- 
tion . ) 
One-fourth of 1 per cent tax on $75,000 for 4i safety fund " . . 187. 50 
One-fourth of 1 per cent tax on $75,000, bureau expenses 187. 50 

1, 777. 07 
1 per cent tax on. $75,000 for " safety fund," first year 750. 00 

2,527.07 

Net profit on $75,000 first vear 1, 972. 93 

Net profit on $75,000 after first year 2, 722. 93 

Statement showing profit accruing to a bank issuing circulation based upon a deposit of 
United States 2 per cent bonds, October 31, 1S94. 

Amount of bonds necessary to secure $75,000 circulation $86, 805. 55 

Interest on $86,805.55 bonds (costing, at 96 per cent, $83,333.33), at 2 per cent 1, 736. 11 
Interest on $75,000 circulation, at 6 per cent 4,500.00 

Gross profits 6, 236. 11 

Deduct: 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

801. 83 

Net profits 5, 434. 28 

>83,333i (cost of bonds) would yield, at 6 per cent 5, 000. 00 

Net profit in favor of circulation 434. 28 

NAT CUR — 24 



370 NATIONAL CURRENCY AND BANKING SYSTEM, 

Statement showing profit accruing to a bank issuing circulation based upon a deposit of 
United States 4 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth, a t!15, $95,833.33), at 4 per cent $3, 333. 33 

Interest on $75,000 circulation, at 6 per cent 4, 500. 00 

Gross profits 7, 833. 33 

Deduct: 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6.00 

Agent's fees 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium . 670. 00 

1, 471. 83 

Net profits 6,361.50 

$95,833.33 (cost of bonds) would yield, at 6 per cent 5, 750. 00 

Net profit in favor of circulation 611. 50 

Statement showing profit accruing to a tank issuing circulation oased upon a deposit of 
United States 5 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth at 119 $99,166.66) at 5 per cent $4, 166. 66 

Interest on $75,000 circulation at 6 per cent 4, 500. 00 

Gross profits 8, 666. 66 

Deduct : 

1 per cent tax on $75,000 circulation $750. 00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium. . . 1, 355. 00 

2,156.83 

Net profits 6, 509. 83 

$99,166.66 (cost of bonds) would yield, at 6 per cent 5, 950, 00 

Net profit in favor of circulation 559. 83 

Statement showing profit accruing to a bank issuing circulation based upon a deposit of 
United States 6 per cent bonds, October 31, 1894. 

Interest on $83,333.33 bonds (worth at 108 $90,000) at 6 per cent $5, 000. 00 

Interest on $75,000 circulation at 6 per cent , 4, 500. 00 

Gross profits . 9,500.00 

Deduct : 

1 per cent tax on $75,000 circulation $750.00 

Annual cost of redemption 37. 50 

Express charges 2. 50 

Cost of plates for circulation 6. 00 

Agent's fees 5. 83 

Sinking fund (reinvested quarterly) to liquidate premium. . . 1, 650. 00 

2,451.83 

Net profits 7,048. 

$90,000 (cost of bonds) would yield, at 6 per cent 5, 400. l 

Net profit in favor of circulation 1, 648. 



BANKING AND CURRENCY HEARINGS, 1894. 

Fifty-third Congress, Third Session. 

INDEX. 



Page. 

Butler, George A 126 

Cannon, H. W 240 

Carlisle, John G 14 

Cornwell, William C 170 

Dana, William B 169,365 

Dodsworth, William 191 

Eckels, James H 57 

Fairchild, Charles S 240 

Ferris, E. B 168 

Gage, Lyman J 119 

Gibbs, Edward N 120 

Gunton, George 213 

Hepburn, A. B 210 

Homer, Charles C 101 

Jackson, C. C 291 

Lackland, E.I 79 

Pratt, Enoch 268 

Pruyn, Eobert C 240 

Eipley, Alfred L 272 

Eothwell, Eichard P 225 

St. John, William H 326 

Walsh, John E 240,241 

Warner, A.J 241 

White, Horace -. 83, 157 

Williams, George G 300 

371 



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